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Significance
The surge in inflation this year owes more to supply bottlenecks caused by the release of pent-up demand than to falling unemployment. In the decade before the pandemic, US unemployment more than halved and euro-area unemployment nearly halved, but inflation remained below target in both economic areas.
Impacts
Central banks face the dilemma of raising rates too early for growth and too late for inflation, and may struggle to dampen expectations.
The threat of a possible revival of the pandemic will help temporarily to cool inflation expectations that have surged in 2021.
The trade-off between unemployment and inflation that has been missing for many years may emerge again once the pandemic is finally over.
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2021
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