Bringing inflation down to the Fed’s 2% target will require bringing the demand and supply of labor into better balance, with the ratio of job openings to unemployed workers closer to pre-pandemic levels. Fiscal policy contributed to the inflation, but primarily through its effects on consumer demand for commodities and goods in limited supply rather than through the labor market.Īlthough the inflation did not originate in labor markets, the authors show that tight labor markets – best measured by the ratio of the number of vacancies to the number of unemployed persons – are beginning to play a more significant role in pushing up prices, even as the effects of commodity and sectoral price shocks wane. In fact, most of the rise in inflation in 20 was driven by developments that directly raised prices rather than wages, including sharp increases in global commodity prices and sectoral price spikes driven by a combination of pandemic-induced kinks in supply chains and a huge shift in demand during the pandemic to goods from services. would appear primarily in the labor market, as increased demand for workers put upward pressure on wages and, ultimately, prices. They find that many forecasters, including those at the Federal Reserve, anticipated that inflationary pressures arising from the large fiscal packages in the U.S. inflation during and after the COVID-19 pandemic? Ben Bernanke, Distinguished Senior Fellow at the Hutchins Center at Brookings, and Olivier Blanchard, Senior Fellow at the Peterson Institute for International Economics, answer a timely question: What caused the increase in U.S.

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