“The conventional tools of monetary policy, such as short-term interest rates, affect demand-side conditions by altering the costs of borrowing. These conventional tools are ineffective at controlling supply side-generated inflation. Unless we tackle climate change, prices won’t stabilize, and persistent inflation will become the new normal.”
Inflation has been a hot topic recently. With the rate of inflation bubbling at a 40-year high in 2022, a debate has emerged as to the factors fueling inflation. While some economists and policy analysts have blamed excessive aggregate demand enabled by the Covid-19 fiscal stimulus measures, others have emphasized the unprecedented supply chain bottlenecks and labor market disruptions caused by the pandemic. The shocks to food and energy markets caused by the Russia — Ukraine war have also been cited as the causes of inflation. Lastly, record high profit mark-ups have been noted as important price drivers as well. The “disaster capitalism complex” was quick to exploit the Covid-19 pandemic in order to gain record profits by elevating the prices of goods beyond the levels justified by the supply-side impacts of the pandemic.