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The Rise and Retreat of US Inflation: An Update
Macro & Public Finance
17 May, 2025

The Rise and Retreat of US Inflation: An Update

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Dr. Prachi Mishra
Dr. Prachi Mishra
Head and Director, Co-lead, Macro & Public Finance, ICPP, Professor of Economics, Ashoka University
Daniel Leigh
Laurence Ball

Why did US inflation rise over 2021-22 and why has it retreated since then? Ball, Leigh, and Mishra (2022), writing near the inflation peak, explained the rise with a framework in which inflation depends on three factors: long-term expectations; the tightness of the labor market as measured by the vacancy-to-unemployment (V/U) ratio; and large changes in relative prices in particular industries such as energy and autos. This paper finds that the same framework explains the retreat in inflation since our earlier work.

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