The COVID crisis is giving rise to inflation, but not via the expected mechanism

The COVID crisis has led to huge fiscal deficits, which have been financed by central banks and have therefore led to very strong money supply growth. There is still an instinctive reaction to associate money creation with inflation. And i ndeed, inflation has now surged significantly. But this is not due to money creation. The correlation between money supply growth and inflation disappeared long ago. Moreover, the savings accumulated by households as a result of the money creation have not been consumed, so demand for goods and services has not been stimulated. Today’s inflation results from the COVID crisis, but not because of the crisis-induced money creation . Rather, it results from another mechanism : a fter the COVID crisis, the structure of demand shifted from services to goods under the effect of working from home, corporate digitalisation, e-commerce and investments related to the energy transition ; this rise in goods production has give n rise to bottlenecks for commodities, semiconductors and transportation, leading to higher prices for these goods and services and resulting in inflation. This is inflation in the real economy, not monetary inflation.