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Was the Post-Lockdown Inflation Surge Mainly Supply Driven?

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Abstract

By December 2022, the price level of personal consumption expenditures on core goods and services had risen more than 10 percent over the preceding two years. This paper studies consumption price and quantity changes at the disaggregate level using a generalization of Shapiro’s (2024) inflation decomposition method. Categories with inflation and consumption growth innovations that positively co-move are labeled as experiencing current demand-pull inflation. Negative co-movement in the two innovations indicates current supply-push inflation. Category inflation is then decomposed into supply and demand (both current and the expected effect of past shocks) as well as trend. We benchmark the technique using a classic supply disruption, the 1973 oil embargo. 75 percent of non-trend inflation immediately following the embargo was supply-push. In contrast, 33 percent of non-trend inflation was supply-push following the pandemic lockdown. Restricting attention to categories with market-based prices, this falls to 26 percent.

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  • Bill Dupor & Marie Hogan, 2025. "Was the Post-Lockdown Inflation Surge Mainly Supply Driven?," Working Papers 2025-007, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:99767
    DOI: 10.20955/wp.2025.007
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    1. Susan M. Collins, 2023. "Remarks for the Panel Discussion “Why Did We Miscast Inflation?”," Speech 95720, Federal Reserve Bank of Boston.
    2. François de Soyres & Alexandre Gaillard & Ana Maria Santacreu & Dylan Moore, 2024. "Supply Disruptions and Fiscal Stimulus: Transmission through Global Value Chains," AEA Papers and Proceedings, American Economic Association, vol. 114, pages 112-117, May.
    3. Brinca, Pedro & Duarte, Joao B. & Faria-e-Castro, Miguel, 2021. "Measuring labor supply and demand shocks during COVID-19," European Economic Review, Elsevier, vol. 139(C).
    4. Mary C. Daly, 2024. "Price Stability Built to Last," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2024(01), pages 1-6, February.
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    Cited by:

    1. Ina Hajdini & Adam Hale Shapiro & Andrew Lee Smith & Daniel Villar Vallenas, 2025. "Inflation Since the Pandemic: Lessons and Challenges," Working Paper Series 2025-16, Federal Reserve Bank of San Francisco.

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    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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