Inflation: What didn’t cause it?

In the year to June, the Consumer Price Index rose by 8.5%. What caused this?

Let us first eliminate some answers by looking at what didn’t cause this. As I wrote in June:

[President} Biden argues that inflation has been “exacerbated by Russian President Vladimir Putin’s war in Ukraine” and “supply chains that haven’t fully healed [which] are causing shortages and price hikes.”

This is dreadfully superficial. Gas prices increased by $1.15 per gallon — 48% — between Biden’s inauguration and Russia’s invasion of Ukraine [See Figure 1]. “Supply chains” is one of those catchall phrases that can mean almost anything, but real gross domestic product (GDP) — the amount of goods and services produced in the economy — was 2.7% higher in the first quarter of 2022 than in the fourth quarter of 2019, suggesting that “supply chain” issues were largely resolved [See Figure 2].

Figure 1

Figure 2

If gas price hikes and ‘supply chain issues’ didn’t cause our current inflationary problems, what did? I’ll explain tomorrow.