Harvard Business Review

Inflation Should Be an Important Consideration in Your Supply Chain Strategy

As a business leader, you have had to deal with numerous challenges in recent years: the Covid-19 pandemic, criminal cyberattacks, extreme weather events, geopolitical tensions, and more. Now you can add inflation woes to your list of potential challenges.

Shifting Central Bank Priorities

In the 2010s, inflation in major economies was largely at historically low levels. In the U.S., it has typically been 2% or less annually, and the target of the European Central Bank has also been about 2%. During this period, many worried more about deflation than a jump in the inflation rate.

The economic shock of the pandemic shook up the political landscape. New economic priorities and policies emerged, first to shore up citizens and businesses with financial support, and later to stimulate economic activity and catalyze employment. Nations such as Japan, Singapore, Germany, and the U.S. created large stimulus programs financed by deficit spending.

Budget hawks are disappearing around the world. Political support for substantial deficit spending is extensive and growing. But as many governments approve spending legislation, these increases add to the countries’ national debts. This spending is adding billions to the market, causing inflationary pressures to return.

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