The COVID-19 inflation shock was initially seen as a sign of overheating, with many viewing the Federal Reserve as dangerously behind the curve.

But given unprecedented supply chain disruptions, it is increasingly consensus that pandemic-era inflation was largely supply-driven.

Firms’ margins have only begun to normalize, underscoring the long-lasting effects of COVID-19 disruptions.

We expect inflation will keep falling, given the importance of lagged disinflation effects from supply normalization.