While the spike in energy prices is a global phenomenon, the rise in core prices is unique to the U.S. and driven by the sharp rise in U.S. retail sales. That jump is almost certainly a result of the stimulus that the U.S. economy received last year and this.
The exceptionally high inflation in the U.S. is a demand-side phenomenon. Nonetheless, it would be a mistake for the Fed to try to bring it back in line with the rest of the developed world.
Crucially, while European labor markets are tightening, they are nothing like the American labor market, where record-high openings may leading to fundamental changes in the ways employers operate. Those changes are a potential source of opportunities for workers and productivity growth throughout the economy.
To the extent the burst in inflation that the U.S. is seeing now is a result of fiscal stimulus, it will begin to fade in 2022. To the extent that businesses are successful in economizing on labor, the resulting productivity improvements will also reduce inflation pressures. The upshot is that the supply-chain situation is likely to be far less dramatic a year from now.
This article was provided by Bloomberg News.