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Are the Demand and Supply Channels of Inflation Persistent? Evidence from a Novel Decomposition of PCE Inflation
Using highly disaggregated personal consumption expenditures data, I analyze whether the recent inflation run-up is explained by supply shocks more than by demand shocks, and whether these demand and supply shocks are likely persistent or transitory. I develop a new decomposition method that enables me to classify inflation in disaggregated consumption categories as being driven predominantly by persistent supply shocks, transitory supply shocks, transitory demand shocks, or persistent demand shocks. Similar to other recent analyses, this brief finds that both demand and supply shocks are ...