<p>Central banks are stubbornly increasing rates to fight current spike of inflation.
Inflation, especially in Europe but also in the USA, is mainly supply driven and, killing demand to try to tame an  increase  in prices which  derives mainly from the increase in energy prices  doesn’t look very efficient.
The risk is a dramatic slow down in economic activities, especially in Europe,  but still central bankers don’t appear to care about that. Supply inflation, something they can do very little about, is their main concern.
Should they revise their rate increase policy or  is there no other way out of this mess?</p>

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2022-09-27T06:44:28.857Z
The premise of supply inflation is quite hard to establish as it is really the case of a mix between them.  See for example this [paper](https://www.frbsf.org/economic-research/publications/economic-letter/2022/june/how-much-do-supply-and-demand-drive-inflation/) by Adam Shapiro (though I'm not fan of the methodology). it shows that this is a real question what drives the inflation. But even if the inflation is 100% supply-driven, it does not mean that curbing demand not going to tame the inflation. the Fed seems to be fearing wage-spiral for some reason.
d_e
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2022-09-27T10:15:50.077Z
@d_e - well, the Fed has denied the danger of inflation till it was evident even  to my grandma. Should we trust what they are doing now?
Gio
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2022-09-27T12:02:44.990Z
@Gio, It looks like my final sentence took a different interpretation.  I said for *some* reason [hinting this is something I don't see], not for *a* reason. But I really don't know, and I admitted that even before the Fed's chairman who recently said: *"I think we now understand better how little we understand about inflation"*
d_e
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2022-09-27T12:06:40.197Z
Energy prices spiked as ever before and impacted prices all way down to final products and consumers. Not sure they need a degree to understand this. But they are trying to stop the price increase at production and consumer levels..while the heart of the problem is uphill. The final result will be recession. And new money printing.’
Gio
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2022-09-27T12:14:37.153Z
@Gio, I'm clearly not going to defend to Fed, and to me it seems their very aggressive action that results from focusing on few short term indicators will have adverse impact years to come. But It is just complex system: The Fed, so I understand, view recession as a lesser of two possible evil outcomes.
d_e
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2022-09-27T18:34:30.577Z
@user253751 - that’s how demand inflation normally behaves. Supply inflation is a different  story.
Gio
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2022-09-27T18:37:46.343Z
@user253751 - no sorry. The issue is that supply prices spiked sky high, and not for  demand excess but for different reasons (Essentially price manipulation for geopolitical reasons)
Gio
CC BY-SA 4.0
2022-09-27T18:39:02.317Z
See natural gas prices in Europe for instance ..from  20 to 300 euros per mhw, in one year. No demand change, just geopolitical reasons
Gio
CC BY-SA 4.0
2022-09-27T18:43:13.253Z
That’s supply inflation, and no rate increase can affect that, unless you kill the economy.
Gio
CC BY-SA 4.0
2022-09-27T19:02:47.693Z
Yes, that’s the wrong way to go.
Gio
<inflation>
Are interest rates increases fighting inflation?
user067531
# Are interest rates increases fighting inflation?

(Asked by: username_0 on 2022-09-27)

Central banks are stubbornly increasing rates to fight current spike of inflation.
Inflation, especially in Europe but also in the USA, is mainly supply driven and, killing demand to try to tame an increase in prices which derives mainly from the increase in energy prices doesn’t look very efficient.
The risk is a dramatic slow down in economic activities, especially in Europe, but still central bankers don’t appear to care about that. Supply inflation, something they can do very little about, is their main concern.
Should they revise their rate increase policy or is there no other way out of this mess?

**Tags:** inflation

> **Comments:**
> **username_1**: The premise of supply inflation is quite hard to establish as it is really the case of a mix between them.  See for example this [paper](https://www.frbsf.org/economic-research/publications/economic-letter/2022/june/how-much-do-supply-and-demand-drive-inflation/) by Adam Shapiro (though I'm not fan of the methodology). it shows that this is a real question what drives the inflation. But even if the inflation is 100% supply-driven, it does not mean that curbing demand not going to tame the inflation. the Fed seems to be fearing wage-spiral for some reason.  
> **username_2**: @username_1 - well, the Fed has denied the danger of inflation till it was evident even  to my grandma. Should we trust what they are doing now?  
> **username_1**: @username_2, It looks like my final sentence took a different interpretation.  I said for *some* reason [hinting this is something I don't see], not for *a* reason. But I really don't know, and I admitted that even before the Fed's chairman who recently said: *"I think we now understand better how little we understand about inflation"*  
> **username_2**: Energy prices spiked as ever before and impacted prices all way down to final products and consumers. Not sure they need a degree to understand this. But they are trying to stop the price increase at production and consumer levels..while the heart of the problem is uphill. The final result will be recession. And new money printing.’  
> **username_1**: @username_2, I'm clearly not going to defend to Fed, and to me it seems their very aggressive action that results from focusing on few short term indicators will have adverse impact years to come. But It is just complex system: The Fed, so I understand, view recession as a lesser of two possible evil outcomes.  
> **username_2**: @user253751 - that’s how demand inflation normally behaves. Supply inflation is a different  story.  
> **username_2**: @user253751 - no sorry. The issue is that supply prices spiked sky high, and not for  demand excess but for different reasons (Essentially price manipulation for geopolitical reasons)  
> **username_2**: See natural gas prices in Europe for instance ..from  20 to 300 euros per mhw, in one year. No demand change, just geopolitical reasons  
> **username_2**: That’s supply inflation, and no rate increase can affect that, unless you kill the economy.  
> **username_2**: Yes, that’s the wrong way to go.  

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## 0 answers

