The author is an economist at a regional research institution.

The contemporary inflation conversation has, with notable consistency over the past several years, been organised around the wrong dominant narrative. The narrative that has been doing most of the work in public discourse focuses on monetary policy and supply-side disruption; the narrative that the underlying data more strongly supports focuses on housing-cost dynamics and on the structural shifts in services pricing.

What the data actually shows

What the data shows, on the most rigorous decomposition of the inflation indices over the past several years, is that the persistent component of elevated inflation has been concentrated in services categories whose pricing dynamics are not principally driven by monetary conditions. Housing has been the largest single contributor; healthcare services and education have been meaningful additional contributors.

Why this matters

It matters because the policy responses calibrated for monetary-driven inflation are different from the responses that would address the structural-services inflation. The former are working through the standard monetary-policy channels; the latter require sectoral interventions that the monetary-policy framework cannot, on its own, deliver.

What the standard story misses

The standard story misses the structural-services dynamics in part because the discipline of macroeconomics has been better calibrated for traded-goods inflation than for services inflation. The discipline is catching up; the public conversation will catch up later still.

What the narrower story implies

The narrower story implies that monetary policy has done most of what it can do against the inflation profile of the past several years, and that further progress depends on sectoral interventions that the standard policy framework treats as somewhat outside its purview. That framing is uncomfortable for both supporters and critics of the existing monetary policy.

The honest read

The honest read is that the inflation that the country has been experiencing has had multiple sources, that the policy response has been better at addressing some sources than others, and that the path back to consistent low inflation requires the structural work that the public conversation has been organised to ignore. The work is harder than the monetary-policy story; it is also more likely to produce the desired outcome.