Was the 2021–23 inflation about supply or demand?
The biggest inflation in 40 years. Euro-area inflation peaked at 10.6% in October 2022.
Side A
Mostly supply shocks
Energy, food and supply-chain shocks after the pandemic and Russia's invasion of Ukraine.
Evidence
Bernanke and Blanchard (2023) found price shocks explained most of the initial US surge. In the euro area the energy shock was larger still. ECB staff also found profit margins drove much of domestic inflation in 2022.
Side B
Too much demand
Stimulus and loose monetary policy overheated the economy.
Evidence
Larry Summers warned in early 2021 that the US stimulus was too large. Bernanke and Blanchard found tight labour markets became more important over time and more persistent.
What to watch
Whether central banks raised rates too late, and whether the US and euro area differ because their shocks differed.
Where I lean
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