The Truth Behind Inflation's Beneficiaries

The White House's Council of Economic Advisers (CEA) argues that pandemic-related supply shocks, rather than excess demand, were primarily responsible for the recent surge in inflation. However, critics argue that the CEA's analysis overlooks important indicators of labor-market slack, such as the labor-market conditions index (LMCI), which show a strong correlation between a tighter labor market and higher inflation. They warn that downplaying the role of excessive stimulus in driving inflation could lead to a repeat of the worst macroeconomic policy mix in decades.