By Christopher Decker
The 9.1% increase in U.S. consumer prices in the 12 months ending in June 2022, the highest in four decades, has prompted many sobering headlines .
Meanwhile, annual inflation in Germany and the U.K.—countries with comparable economies—ran nearly as high: 7.5% and 8.2%, respectively, for the 12 months ending in June 2022. In Spain, inflation has hit 10% .
It might seem like U.S. policies brought on this predicament, but economists like me doubt it because inflation is spiking everywhere , with few exceptions. Rates averaged 9.65% in the 38 largely wealthy countries that belong to the Organization for Economic Cooperation and Development through May 2022.
What revved up those price increases starting in early 2021 ?
Scarcity put pressure on prices everywhere
When the COVID-19 pandemic began, demand for computers and other high-tech goods soared as many people switched from working in offices to clocking in at home .
Computer-chip manufacturers struggled to keep up, leading to chip shortages and higher prices for a dizzying array of devices and machines requiring them, including refrigerators, cars and smartphones.
It’s not just chips. Many of the goods Americans consume, such as cars, televisions and prescription drugs, are imported from all corners of the world .
Supply-chain strains
On top of problems tied to supply and demand changes, there have been major disruptions to how goods move to manufacturers and then onto consumers along what’s known as the supply chain .
Freight disruption, whether by ship, train or truck, has interfered with the delivery of all sorts of goods since 2020. That’s caused the cost of shipping goods to rise sharply .
These massive shipping disruptions have exposed the disadvantages of the popular just-in-time practice for managing inventory.
By keeping as little of the materials needed to make their products on hand, companies become more vulnerable to shortages and transportation snafus. And when manufacturers are unable to make their products quickly, shortages occur and prices surge.
This approach, especially when it involves the reliance on far-flung suppliers, has left businesses much more susceptible to market shocks.
Labor complications
The beginning of the pandemic also sent shock waves through labor markets with lasting effects .
