I use Phillips curve type regressions to assess the relative contributions of demand and supply forces to U.S. inflation during the pandemic era (February 2020 onward) and the decade after the Great Recession. Model 1 measures demand and supply using the vacancy-unemployment ratio and the New York Fed’s Global Supply Chain Pressure Index. Model 2 uses the demand- and supply-driven components of PCE inflation from Shapiro (2026). Both models yield similar results: demand forces dominated during the pandemic era, while supply forces drove low inflation after the Great Recession, helping to explain why inflation remained persistently below the Fed’s 2 percent goal despite highly accommodative monetary policy.
Suggested citation:
Lansing, Kevin J., 2026. “Demand versus Supply: Which is More Important for Inflation?” Federal Reserve Bank of San Francisco Working Paper 2025-08. https://doi.org/10.24148/wp2025-08