However, why are economists wary of classifying this is as transitory or supply-led inflation? Because one cannot ignore the role of demand. The lull in the economic activity during lockdowns was followed by rapid recovery, which was fueled by fiscal and monetary stimulus. This meant that the households had higher disposable income. Furthermore, because service sectors, like travel, hospitality, entertainment and restaurants were closed, the consumers spent more on goods. This led to higher demand for goods, relative to their supply. Because this inflation is both demand- and supply-led, it might be here to stay.
The pertinent question to ask is this- can this inflation be tamed soon? This is hard to predict given the pervasive labour market shortages in the US, the sluggish recovery of the Chinese economy and the uncertainties regarding the future Covid-19 waves. Since the second half of 2020, the labour demand has far exceeded the supply in the US. This means that the price of labour, i.e., nominal wage rates, has been going up. This has led the firms to pass on the higher labour cost to the consumers in the form of higher product prices. Even with the rise in job openings, the labour force participation rates are yet to reach the pre-pandemic levels. This phenomenon is forecasted to continue, contributing to higher inflation.