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How to respond to rigid supply?
Inflation always stems from rigid supply (of goods and services, labour, commodities, etc.). This is visible today with labour (in the United States), commodities and transport. So how can economic policy respond to rigid supply? Either use a restrictive monetary policy to reduce demand to the level of supply, which prevents inflation; Or let the rebalancing of markets take place via an increase in prices, which will both reduce demand and boost supply. This amounts to accepting inflation; Or carry out supply-side policies to increase supply (for labour: training, skills, improved working conditions; for goods and services and commodities: support for investment to increase production capacity). It is clear that a restrictive monetary policy is the costliest choice in terms of production.
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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