Because of supply constraints, the Federal Reserve of the United States is keeping an eye out for sustained inflation.




Supply bottlenecks
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Canadian inflation appears to be quite low by American standards. However, the image portrayed by US Federal Reserve Chair Jerome Powell implies that price increases will continue for some time. Hours after Statistics Canada announced that inflation had fallen to 3.1% in Canada, down from 3.6% the previous month but still above the Bank of Canada’s goal range, Powell voiced concern that future consumer prices would be “higher and more persistent.”

As rivers of pandemic savings pour into the market, the US economy is heating up quicker than Canada’s. However, after grinding to a halt during the severe COVID-19 demand slump, the global industry is struggling to get back into motion. The inability to obtain critical components from elsewhere has slowed automobile manufacturing, for example, causing rental firms to bid up those that are available. People who need a car to get back to work have been bidding up used vehicle prices. Many typical minor appliances are just unavailable, causing retailers to hike costs for those that are.

Economists refer to this as the bottleneck effect. Bottlenecks are useful for pouring whisky because they prevent the liquid from flowing down your throat all at once. However, much like a mob rushing to escape a burning theatre through a small entrance or cars on a motorway suddenly reduced to a single lane, passing through that narrowing point can be harmful and distorting.

Even if occupations such as hairstyling are not affected by a lack of microchips, the bottleneck effect still exists. After a year without a haircut, a bottleneck might emerge if everyone wants a trim or a tint all at once, even if every hairdresser is working full time. Employers are also experiencing difficulty hiring labor in several service areas.