Last April, economists thought inflation would be around 2.5% right now. Instead, it’s over 6%. Even by the forgiving standards of economic forecasting, that’s a miss of epic proportions.
Explanations come in two schools. The demand school blames President Biden and the Federal Reserve for administering too much stimulus.
The supply school blames pandemic-related bottlenecks and supply chains.
In fact, it’s becoming clear that neither demand or supply by itself is to blame. Rather, this inflation was made possible only by strong demand interacting with restricted supply. The U.S. hasn’t seen anything like this combination except, perhaps, in the aftermath of World War II. Then, Mr. Biden’s Council of Economic Advisers
has noted, pent up demand coincided with war-induced shortages. This makes the solution elusive: fixing supply is largely beyond the means of the White House and Fed, but treating the problem as one of only demand could damage the economy.