Demand Exceeds Supply

US core inflation remains high primarily due to strong demand rather than supply shocks. With a positive output gap of 1%, inflation is likely to remain sticky and well above the Fed's target.

Key Takeaways

• 1.US inflation persistence is primarily driven by demand rather than supply shocks, despite geopolitical narratives focusing on the latter.
• 2.The US output gap remains positive at 1 percentage point, indicating the economy is operating on a steep part of the Phillips curve.
• 3.Even if supply-side issues normalized to 2019 levels, core PCE inflation would likely remain around 3%, significantly above the Fed's 2% target.

Table of Contents

• DB CoTD: Demand > Supply
• Appendix 1
• Important Disclosures
• Analyst Certification
• Additional Information
• International Production Locations

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