['Byeongmok Economy' Attack ①] Economist Inflation Analysis... Demand Surge After Vaccine Vaccination

[Photo by Reuters Yonhap News]

[Asia Economy Reporter Park Byung-hee] Iron ore, copper, semiconductors, lumber... The seed of the global supply chain shortage crisis currently sweeping the world originated from the 2008 global financial crisis. Over the past decade since the financial crisis, countries and companies worldwide have been concerned about weak demand, and supply chains naturally had to shrink accordingly. However, after the success of COVID-19 vaccination mainly in developed countries, demand suddenly exploded, causing problems. Supply could not keep up with the increased demand, resulting in bottlenecks that are driving up various prices.

In this regard, the British economic weekly The Economist recently defined the current situation as ‘The bottleneck economy,’ stating, "Demand, which had been suppressed for over a decade, has suddenly exploded, causing a severe supply shortage."

Supply chain shortages, inflation, and concerns over interest rate hikes caused by these factors have emerged as the biggest headaches for the global economy today. In fact, the world is currently experiencing shortages in everything from semiconductors to steel, copper, and lumber. The shortage of ships transporting raw materials has caused shipping freight rates to surge for several months. The inflation risk caused by such supply disruptions is emerging as a new variable in the global economy. Each time inflation signals appear, major countries’ government bond yields rise and global stock markets fluctuate repeatedly.

The hardest hit is the United States, which is rapidly recovering from COVID-19 due to the vaccine effect. U.S. consumer spending is expected to increase by more than 10% this year. Additionally, President Joe Biden’s approximately $4 trillion (about 4,500 trillion won) physical and human investment bill is also pending. The U.S. Federal Reserve (Fed) is maintaining an ultra-low interest rate policy and supplying liquidity of $120 billion (about 125 trillion won) monthly to the market. However, supply cannot keep up, and prices are exceeding expectations. Supply shortages are also appearing in the U.S. labor market.

The Economist advised that the demand explosion and supply lag causing supply-demand instability are increasing inflation risks and urged the Fed to hasten the withdrawal of stimulus measures.