Spinach, anchovies, and covid

Marguerite Rigoglioso:

In 2006, spinach producers were hit by an outbreak of E. coli contamination that ground the industry to a halt as all spinach-based food products were yanked from the U.S. market. This nightmare scenario is a particularly dramatic example of the kind of temporary shock that can affect a company's fortunes overnight.

I like this example: spinach instead of oil and wages.

 

 

rommeldak:

I remember reading in an economics textbook of the example of anchovy fishing off the coast of Portugal. Apparently, anchovies are not just for pizza. They are also a major part of cattle feed. One year, for some reason the anchovies didn’t show up in their usual places and so the harvest was very light. Since there had not been a change in the demand for the tiny, salty fish, this caused a rise in price. It cost cattle-feed manufacturers more to produce cattle feed, meaning that ranchers had to pay more, too, and on down the line. The fact that the anchovies didn’t show up caused inflation, which affected the incomes of those involved... Again, however, this is what the market is supposed to do.

 

 

Eric Olson:

While the Federal Reserve and congressional responses to the crisis is well-intentioned and probably necessary, it has also increased demand-pull inflation risk over the next 24 months. Here’s an example of how that might work: Once restaurants reopen for indoor service, they likely will not have the same capacity as they did before. If a restaurant had 150 seats before the crisis, it may only have 75 seats due to social distancing requirements. Restaurants may need to increase prices to “make up” for the lost revenue. The same holds true for movie theaters, basketball arenas, football stadiums, water parks, theme parks, etc. My suspicion is that demand for most goods and services will likely come back at a faster rate than supply, resulting in some demand-pull inflation.

Great insight.

I would have said cost-push: shortfall of supply ==> cost-push, I dunno. But restaurants and movie theaters permanently operating at half-capacity, that's definitely a supply shock.