Is Demand or Supply More Important for Inflation?

Kevin Lansing

FRBSF Economic Letter, 2025, vol. 2025, issue 14, 6

Abstract: Simulations using a Phillips curve-type relationship provide insights into the importance of demand versus supply for inflation over different periods. The decade of low inflation after the Great Recession was driven mainly by supply forces. Given that monetary policy operates to influence demand but not supply, this result helps to account for the persistent undershooting of the Fed’s 2% inflation goal during these years. In contrast, the period of high inflation during the pandemic era was driven mainly by demand forces.

Keywords: demand; demand and supply; supply; inflation; monetary policy; Great Recession (search for similar items in EconPapers)
Date: 2025
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