Supply shocks and inflation: timely insights from financial markets

Massimo Ferrari Minesso, Ine Van Robays and Maria Giulia Cassinis

No 3096, Working Paper Series from European Central Bank

Abstract: We introduce a mixed-frequency model that identifies the impact of supply shocks on inflation in the United States in real time. The model decomposes weekly movements in inflation-linked swap rates—market-based inflation expectations—and isolates three supply shocks: global value chain disruptions, energy supply shocks, and domestic supply constraints, separating them from demand-driven factors. We show how these shocks contributed to a post-Covid feedback loop that intensified inflation. By linking weekly shocks to monthly inflation components up to the industry level, we find that global value chain disruptions generate the most persistent and broad-based price pressures, while energy and domestic supply shocks tend to produce more transitory effects, as their narrower inflationary impact is more easily offset by demand-dampening, contractionary forces. Our model captures these various supply-side dynamics effectively and offers timely insights to support a more responsive monetary policy. JEL Classification: C54, C58, E31, G12, G15

Keywords: inflation; mixed-frequency VAR; supply shocks (search for similar items in EconPapers)
Date: 2025-08
New Economics Papers: this item is included in nep-cba and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20253096

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