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Off the Charts: Supply Chain Angst
Is inflation in the U.S. the product of monetary policy or supply chain problems?
Updated May 11, 2023, 5:00 p.m. Published Nov 12, 2021, 8:16 p.m.
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This week, the U.S. consumer price index for October showed a 6.2% increase from a year ago, the highest inflation rate since 1990, news that directly contributed to bitcoin’s mid-week surge to new all-time highs.
What’s causing that inflation? Well, Bitcoin advocates and gold bugs argue that it’s all about the debasement of fiat currencies through massive printing. That perspective sees it as a self-perpetuating monetary phenomenon that will be very difficult for central banks to stop.
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Most mainstream economists attribute it almost entirely to the disruptions caused by supply chain breakdown in the wake of the pandemic. They say inflation is transitory, a temporary problem that will be resolved once shipping networks return to normal.
The following chart doesn’t answer who is correct. But it does put some illustration onto the supply chain problem. This is the deep sea freight cost component within the Bureau of Labor Statistics’ producer price index for the past two years, drawn from the Federal Reserve Bank of St. Louis’s FRED database.
The freight price index is up 20% from a year ago. Those rising prices will themselves feed into U.S. consumer prices downstream. More importantly, it’s a direct manifestation of the shipping logjam that is associated with and contributing to supply chain interruptions. It’s worth watching for signs that the supply chain problem is either worsening or correcting itself.
Note: The views expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.
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- Consumers benefit from this competition, positioning the current administration as firmly on the side of technological innovation.
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- Witt expressed confidence that despite these delays, the legislation will eventually be reconciled and brought to the Senate floor.
Reading Between the Lines: Stablecoins are acting as a "gateway drug" for global business leaders who are beginning to grasp the technology's potential—and its threat.
- Witt observed a cycle where traditional players move from a lack of understanding to fear, and finally to incorporating crypto into their own product offerings.
- While some Senate Republicans worry about stablecoins causing deposit flight from community banks, Witt believes a "smooth glide path" into these future technologies is possible with patience and cooperation.
- “Consumers win when there’s choice,” he said, while also acknowledging concerns from Senate Republicans about community banks and financial stability. The administration, he suggested, sees convergence between crypto and traditional finance as inevitable but wants the transition to be smooth rather than destabilizing to all parties.
- U.S. regulators intend to lead the global regulatory conversation, even if the domestic legislative process results in imperfect "directionally accurate" rules.
What Comes Next: Once the primary market structure bill passes, the administration plans to pivot toward a major crypto tax package.
- Witt suggested there is still a window of opportunity to pass additional digital asset legislation this year before midterms dominate the congressional calendar.
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