What Drives Inflation? Disentangling Demand And Supply Factors

Disentangling demand and supply factors driving inflation has often been a major challenge for monetary policy. This is also the case currently, as there are different views on the relative role of demand and supply in the inflation surge since 2021. This BIS paper estimates demand and supply factors and assesses their contribution to inflation dynamics in the United States over the past five decades. The analysis also covers the euro area over the past two decades.