BNP Paribas analysts report that demand remains the primary driver of inflation in the United States, although its influence has diminished from the post-Covid peaks observed in 2022 [1]. Utilizing Bureau of Economic Analysis data and San Francisco Fed methodology, the analysts note that supply factors are once again playing a significant role in inflation, similar to levels seen in 2018–19 [1]. They highlight that tariffs, rising input prices, and longer delivery times are likely to keep supply-side inflation pressures elevated [1].
The report states, 'In the United States, demand plays a more significant role in inflation, but less so than in 2022,' and points out that the contribution of supply to inflation, while lower than in 2022, is not negligible and has returned to its previous importance [1]. Supply constraints have increased slightly since the Trump administration’s tariff hikes and may rise further due to the recent rebound in input prices and delivery times [1].
Despite the resilience of US consumption and its outperformance following Covid, the momentum of demand-led inflation has been moderating in recent months, coinciding with a deteriorating labor market [1]. The analysis suggests that while demand continues to be the dominant force, supply-side factors are becoming increasingly relevant and could exert upward pressure on inflation going forward [1].
CONCLUSION
BNP Paribas finds that US inflation is still primarily demand-driven, but the impact of supply-side factors is rising, with recent increases in input prices and delivery times. The moderation in demand momentum, alongside a weakening labor market, signals a shift in inflation dynamics. Market participants should monitor both demand and supply developments for future inflation trends.