The global economy is entering unfamiliar territory. After a decade of worries about inadequate demand and spending power in the aftermath of the global financial crisis, signs of insufficient supply are now emerging . A lack of goods , services and people me ans that redhot demand is incre asingly met
slowly or not at all. There are alre ady signs that supply bottlenecks may lead to nasty surprises which could upset the postpandemic recovery. Nowhere areshortages more acute than in America, where a boom is under w ay. Consumer spending is growing by over 10% at an annual rate, as people put to work the $2trnplus of extra savings accumulated in the past year. More stimulus is still being doled out. The boom is cre ating two kinds of bottleneck. The first relates to supply chains . There are shortages of everything from timber to semiconductors. The cost of shipping goods from China to America has tripled. C ompanies have not reported supplier delays this severe in decades. In the past ye ar many firms ha ve cut their investment in logistics . Lockdowns have
left some container ships stranded. Companies are trying to go from 0 to 60 and it shows. The second kind of bottleneck is in labour mark ets. In April
America created only 266,000 jobs , many fewer than the 1m or more that had been e xpected. Yet job v acancies are at alltime highs, and so firms are struggling to fill positions . Economists argue over whether generous unemployment benefits are giving people a reason not to look for work. It also takes time for people to move from dying industries to growing ones. As booming demand runs up against tight supply, inflation is in the spotlight. In April American consumer prices rose by 4.2% year on year, up from 2.6% in March (see Finance section). This partly reflects “base effects”: oil prices are only as high as they were in 2019, but 272% higher than in April 2020. It also reflects a genuine underlying rise in global prices. China’s factorygate
prices are rising at the fastest rate in over three years. Central banks insist that their maximal stimulus must continue for fear of jeopardising the nascent recovery (see Charlemagne). Lael Brainard, a governor of the Federal Reserve, has said that the inflation spike as the economy reopens will be “largely transitory”. Jerome Powell, the chairman, sees little reason to worry. The Fed will tolerate somewhat abovetarget inflation for a bit, in part because it expects prices soon to fall back. So do many forecasters. Yet this approach carries dangers.Oneis that inflation fades slowly. The supply bottlenecks of the early phase of the pandemic in 2020 cleared fast, but there is no guarantee this will happen now. Inflation expectations may also rise if people come to believe that central banks will act slowly and too late . Many companies are now discussing inflation with their investors. Bondmarket traders think the Fed will be forced to act sooner than it w ants. Bill Dudley, a former governor, worries that the Fed will have to raise interest rates to as high as 4.5% to cool the economy. This points to the danger that sharp r ate rises rock markets. So far the main event has been a selloff in tech stocks, which is manageable. Banks are well capitalised. Y et the rec ent implosions of Archegos, a hedge fund, and Greensill Capital, a finance firm, are a reminder of the hidden leverage in a financial system that has come to depend on low interest r ates. The postpandemic boom may not always be exciting for the right reasons.