Defying predictions that inflation would be around 2.5% at 2021’s end, it’s now over 6%, and neither the supply side nor the demand side by themselves is to blame. The cause is more likely strong demand interacting with limited supply, according to an article in The Wall Street Journal. Fixing supply is beyond the scope of government and the Fed, but focusing solely on demand could damage the economy, making for an elusive solution.

Considering demand, the Phillips curve—the inverse relationship between unemployment and inflation—was factored into forecasts this spring, making it unlikely that it’s responsible for the current inflation rate. On the supply side, while global shortages contributed to core inflation, most other advanced economies haven’t seen their inflation rise as high as the U.S. despite suffering the same disruptions. What’s different about the U.S. is the blend of tightened supply in many sectors with demand inflated by financial stimulus, the article contends.

While many economists point out that the increase to inflation is mainly on the goods side, it’s starting to spread to services. Home prices are up 14% in 2021, and the Fed can’t be blamed for that: demand is concentrated into a few select markets with low inventory like Idaho, resulting in volatile price dynamics. And in the labor market, demand for workers has skyrocketed, but supply hasn’t responded, resulting in rising prices alongside wages.

Because the origins of this inflation situation are so unusual, the solution isn’t straightforward. In an ideal market, it will easily recede as disruptions to both supply and demand self-correct. But that course correction could take some time, allowing for inflation to balloon and giving more potential for higher interest rates and a possible recession, concludes the article.