Column: Oil prices, inflation and the business cycle in 2022 | Reuters

Column: Oil prices, inflation and the business cycle in 2022 | Reuters

The White House has consistently argued the global economy will grow its way out of current supply chain bottlenecks, with strong demand encouraging investment in new capacity, bringing price rises gradually under control.

In this view, demand will eventually create its own supply, without generating too much inflation in the interim, an assumption that lies behind the plan to run a high-pressure economy without overheating.

“Economic heat does not necessary equate with overheating”, White House advisers Jared Bernstein and Ernie Tedeschi said in a press briefing earlier this year (“Pandemic prices: assessing inflation in the months and years ahead”, April 12).

Supply chain bottlenecks and the resulting upward pressure on prices are “transient” problems that will resolve themselves as price rises spur investment in new productive capacity.