Demand-Driven Inflation Found Dominant Post-Pandemic

A new study on demand-driven inflation suggests that strong consumer spending, government stimulus, and low interest rates contributed more to rising prices than supply disruptions after the COVID-19 pandemic.

The research, presented at the Brookings Papers on Economic Activity (BPEA) conference in September 2026, found that unexpectedly high demand was the dominant driver of inflation in both the US and euro area during this period.

The authors, Domenico Giannone and Giorgio E. Primiceri, used economic models to examine consumer price inflation from 2020 to 2022 and discovered that strong demand, fueled by a robust spending rebound, expansionary government spending, and accommodative monetary policy, led to higher prices.

The study's findings contradict the widespread emphasis on supply-chain disruptions and energy market shocks as the primary causes of inflation. While these factors did play a role, the authors argue that policymakers may have inadvertently contributed to inflation by keeping interest rates low in response to perceived economic weakness.