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Inflation worries? Read your history. [1]

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Date: 2022-07-13  

Demand > supply leads to inflation.. The sentence is a simple, reliable one. World War 2 wiped out the manufacturing sector of every country in Europe, leaving only the US ready to rebuild, which is what drove the US auto industry, appliances, electronics, and so on. It took several years for Europe to rebuild and retool (not as many war materials were needed now) their manufacturing sector. People were done with rationing, wanted to go back to living their lives, and had money to spend, but the things they wanted to buy weren’t being made yet in anywhere near the quantity that was demanded. Demand > supply leads to inflation. Besides, the militaries of Europe and the US has swallowed up the majority of the oil that was being produced, leading to higher prices due to transportation costs. In 1948, the annual inflation rate for several months was nearly 20%. It lasted a year, and in 1949, the rate was back down to 2-3%. Supply had caught up with demand.

COVID-19 bombed the manufacturing sector across all of the developed world. Many supply chains are still broken and Demand (once again) > supply and we are suffering from inflation. Add the Russian invasion of Ukraine, causing petro refiners to panic (“We may not be able to get any next year!”) and grab every drop available and sign futures contracts for down the road, raising the oil prices and transportation costs.

As of writing this, oil prices are down 15% in the last 4 weeks. I had to pawn my crystal ball, so I don’t know if this is a trend or a blip, but I’m hopeful and history will repeat itself and the supply will rise to meet demand and the inflation will drop.

For those who think Biden is the cause of all the inflation, I point out that gas prices are so high in Sri Lanka to the point that their government is bankrupt, and the country has 3 days of gas left. You can’t tell me that Biden affects the gas prices in Columbo.

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[1] Url: https://www.dailykos.com/stories/2022/7/13/2109925/-Inflation-worries-Read-your-history

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