Housing provides another example of this temporary, self-correcting phenomenon. The loss of one million Americans under Donald Trump’s pandemic mismanagement ought to have lowered housing prices. But the pandemic also induced people to look for greener pastures. Major cities like New York came to seem less attractive than places like Southampton.
As the world was recovering from the pandemic, inflation shot up due to supply chain disruptions and sudden changes in demand patterns. While the demand shifts might have posed a challenge to price stability even in the best of times, the breakdown in supply chains made matters worse. The market could not respond immediately, so prices increased.
Recall that we initially experienced a car shortage simply because of a shortage of computer chips, a problem that took 18 months to correct. The issue was not that we had forgotten how to produce cars or lacked trained workers and factories. We were just missing a key component. Once it was supplied, automobile inventories expanded, and prices decreased — disinflation set in.
