In Search of a Remedy for Disruptions: Assessing the Effects of Inflationary Pressures on Supply Chains During the COVID-19 Era

1. Introduction

COVID-19 was, and still is, a life changing event that affected nearly every aspect of the global economy, including the demand and the supply of services and goods in every sector of the economy. Lockdowns and quarantines worldwide, notably in China––the world's leading production hub––affected the supply of labour, raw materials, and finished products, causing significant disruptions in manufacturing, shipping, and transportation of goods. Additionally, stimulus payments issued by the government to selected groups of citizens, companies whose income and revenues were negatively affected by the pandemic, or to all citizens, as evidenced in the U.S., caused major changes in consumer behaviour. This fostered growth in the demand for consumer goods, which facilitated additional demand for raw materials and production facilities when these resources were at their lowest supply and inventory levels.

Some of these effects are indeed attributed to labour shortages resulting from long periods of lockdowns in many countries worldwide (see Table 1), which led to a reduction in production capacities in many economy sectors. Here, the economic equilibrium between supply and demand for goods has also been greatly affected by these major events. Before COVID-19, demand was influenced largely by factors such as population growth, economic growth, market trends, and changes in consumer behaviour and preferences. However, monetary policies implemented by governments worldwide (and particularly the quantitative easing and the stimulus created by the U.S. Federal Reserve) caused major shifts in demand for goods, services, and raw materials, impacting an already fragile global economy.

Figure 1.

(a) Unemployment rate; seasonally adjusted, (b) Nonfarm payroll employment; seasonally adjusted (U.S. Bureau of Labor Statistics, 2022).