Linda Yueh (@lindayueh.bsky.social)

Covid-19 shock brought a rare combination of supply bottlenecks, energy price spikes, strong demand. Many central banks initially treated the inflation surge as transitory and opted to ‘look through’ it, holding policy rates low in the hope that price pressures would fade cepr.org/voxeu/column...

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The return of inflation: Why ‘look through’ can backfire under incomplete information Central banks facing post-pandemic inflation often considered ‘looking through’ supply shocks. Using a New Keynesian framework in which agents gradually learn whether a cost-push shock is temporary or persistent, this column shows that such look-through strategies can amplify inflation when information is incomplete. In contrast, a standard Taylor rule prevents an additional demand-driven inflation impulse and dominates look-through in most plausible calibrations. When policymakers revise beliefs and lift off earlier once persistence becomes sufficiently likely, disinflation is faster – especially with steeper price and wage Phillips curves. The case for look-through survives only when the Phillips curve is very flat and society puts unusually high weight on output stabilisation. https://cepr.org/voxeu/columns/return-inflation-why-look-through-can-backfire-under-incomplete-information