BlackRock Investment Institute

Macro insights

Spending shift drives inflation

Inflation is at historical highs because of a supply shock triggered by the Covid-19 pandemic. The lockdowns and restrictions on activity led to a massive shift in consumer spending away from services, especially contact-intense ones, and toward goods. This sudden increase in demand for goods created supply bottlenecks that pushed up prices. The increase in good prices is far outpacing services inflation, as the chart shows.

/blk-corp-assets/documents/charts/macro-insights-20200314.csv line-chart % line-chart Annual inflation false
U.S. core goods and services CPI inflation, 1975-2022

Sources: BlackRock Investment Institute, U.S. Bureau of Labor Statistics, with data from Haver Analytics, March 2022. Notes: The orange and yellow lines show core goods and core services CPI inflation respectively, measured by the year-on-year percent change in prices

Demand for goods

The reopening of economies will alleviate some of the pressure, in our view. Case in point: Consumer price index data for the U.S. last week revealed a slight easing in goods inflation versus the previous month, even if the year-on-year rate is still edging up. That said, inflation is likely to stay elevated for some time for two main reasons. First, the Ukraine war and the West’s move away from Russian energy is pushing up energy prices – as well as commodities and food prices. Second, this inflation is due to supply shocks, not excess demand, so central banks cannot do much about it. We expect them to live with inflation.

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Elga Bartsch
Head of Macro Research
Read bio
Nicholas Fawcett
Macro Research

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