The supply chain distortions exacerbated by the Covid pandemic were not unprecedented. The same sorts of things happened during the Great Recession of 2008, when demand changes arguably were the big impetus.
“Output in the steel industry dropped by an unprecedented 30 percent and prices by about 50 percent from June 2008 to December 2008,” McKinsey notes. Demand side behavior concatenates through the value chain.
But supply side behavior also matters, and could be a key issue as the recovery from Covid continues. As we have seen with shortages of all sorts of things--computer chips, lumber, toilet paper, boats, container ship capacity, port unloading--supplier effort to compensate for shortages can overshoot, leading to supply excesses.
Chip shortages have lead to shortages of new vehicles, as new cars and trucks cannot be built without ample chipset supply. That, in turn, has lead to shortages of used vehicles. The logical course of action, when possible, is to stockpile inputs. We might be seeing that in the retail grocery area, for example.
But stockpiling can be inefficient, can exacerbate supply shortages, might contribute to inflation, and also eventually leads to oversupply, as manufacturers step up production to meet demand which is inflated by stockpiling behavior. It corrects, but not without damage.
Grocery retailers are stockpiling goods in an effort to avoid shortages and keep retail prices lower, but in doing so will inevitably increase inflation rates, as the stockpiling will increase shortages, which increases scarcity, which leads to higher prices. Rational behavior at the firm level still leads to irrational results for the market.
The point is that both shortages and excess inventory are problems that firm behavior tends to exacerbate.
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