## Understanding U.S. Inflation During the COVID Era

_IMF Working Papers, October 28, 2022_

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## Bibliographic details
- Authors: Laurence M. Ball, Daniel Leigh, Prachi Mishra
- Published: October 28, 2022
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400225390.001

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### Decomposition of inflation dynamics
- The paper decomposes the dramatic rise in U.S. inflation since 2020 into:
  - A rise in core inflation as measured by the weighted median inflation rate.
  - Deviations of headline inflation from core.

### Drivers of core inflation
- Core inflation rise is explained with two primary factors:
  - Tightening of the labor market captured by the ratio of job vacancies to unemployment.
  - Pass-through into core from past shocks to headline inflation.

### Drivers of headline inflation
- Headline shocks are explained largely by:
  - Increases in energy prices.
  - Supply chain problems captured by backlogs of orders for goods and services.

### Forward simulations and scenarios
- The paper simulates the future path of inflation for alternative paths of the unemployment rate, with a focus on the projections of Federal Reserve policymakers in which unemployment rises only modestly to 4.4 percent.
- Key scenario findings:
  - The unemployment path rising to 4.4 percent returns inflation to near the Fed’s target only under optimistic assumptions about both:
    - Inflation expectations.
    - The Beveridge curve relating the unemployment and vacancy rates.
  - Under less benign assumptions about these factors, inflation remains well above target unless unemployment rises by more than the Fed projects.

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_Source: https://www.imf.org/en/publications/wp/issues/2022/10/28/understanding-u-s-525200_