Financial encyclopedia

I talked to you earlier about inflation,

Inflation is often associated with economic growth

But given that the U.S. will record a decline in GDP in the first quarter,

While the economy is contracting

While prices soar?

Inflation can be roughly divided into Demand push inflation(Demand push inflation)↗️ and Cost pull inflation(Cost pull inflation)↖️

In addition to the global rush to print silver paper, the epidemic and the war between Russia and Ukraine are also contributing to the current inflation, leading to a serious imbalance in the supply chain. The increase of the commodity market 🪙, and the increase of energy and food is much higher than that of minerals, which shows that the war between Russia and Ukraine has led to the limited supply of food and energy in Europe (Ukraine is the granary of Eastern Europe, And Russia is the major energy supplier of Europe), which also represents that the current inflation is caused by cost pull, and the inflation crisis is caused by supply chain problems

As you can see in the figure above,

If demand drives inflation ↗️

As the market demand increases,

Prices can rise in line with economic growth

At around 2-3% a year, the central bank would like inflation to rise in tandem with growth

But this time it was a supply chain break,

Cost driven inflation ↖️

Reduced global supply,

Prices go up,

Instead, the economy contracted

If it continues,

You have stagflation

The economy turns sour,

But citizens' purchasing power continues to decline,

It's rain all night long

It also explains why this time inflation will be accompanied by recession