Why inflation in the United States continues to exceed expectations? Supply and demand, who is the "real culprit" causing inflation? In this report,We break down the quantity and price of 126 kinds of consumer goods in the United States, and identify the reasons behind inflation through the changes in volume and price. We found that:

► demand-driven inflationMainly focused on commodity items with expanded demand during the epidemic, including health care goods (such as medical equipment), household goods (such as games and toys, household cleaning products, food and beverages, pets and related products), travel and play goods (such as outdoor equipment, bicycles).

► supply-driven inflationIt mainly focuses on the service items with reduced supply under the influence of the epidemic, most of which are contact services, such as hotel accommodation, air transportation, medical services, sanatoriums, car maintenance and so on.

► inflation driven by both supply and demandMainly cars (including new cars and second-hand cars) and some household durable goods, such as furniture, household appliances, computers and other information processing equipment, household decorations, and so on.

One view is that the year-on-year growth rate of CPI in the United States will reach an inflection point and high inflation is about to pass. We believe that even if there is an inflection point, it is not appropriate to underestimate the persistence of this round of inflation.From the perspective of demand, the impact of the epidemic has changed people's consumption habits, and the consumption of goods instead of services may become a medium-term trend. To say the least, even if consumer demand shifts from goods to services, service prices will continue to rise. In terms of supply, the labor shortage is difficult to ease quickly. History shows that only 15% of retirees will return to the labor market, and the long-term impact of the epidemic will also reduce workers' willingness to work. Under the impact of the Russia-Ukraine incident, the recovery of the supply chain may be delayed, and manufacturing prices have accelerated recently, aggravating the transmission pressure from PPI to CPI.

Beyond that, rent increases are far from over.Rent accounts for 32% of the weight of the CPI basket in the United States. There is a lag in the statistics of rent. The use of house price and current market rent can better predict landlord equivalent rent (owners'equivalent rent) and main housing rent (primary residence rent). The leading time is about 13-16 months. Us house prices have soared in the past two years, and market rental prices have risen, which means that there is still a lot of room for CPI rent sub-item to rise.

Energy and food price risks remain. Since the beginning of the year, international natural gas, oil prices and grain prices have all risen greatly. Looking ahead, the Russia-Ukraine incident is complex and changeable, and its impact on energy and food prices is full of uncertainty. Energy and food account for 13% and 7% of the US CPI basket respectively, and if both remain high, they will also add to inflationary pressures in the US.

The impact of monetary tightening on inflation remains to be seen.According to the Fed's March lattice chart and economic forecast table, the real federal funds rate is only about-2% at the end of this year. Can negative interest rates have a contractionary effect on aggregate demand and thus curb inflation? This does not seem to have happened in the past four decades. In addition, the impact of rising interest rates on inflation is lagging, and if the Fed is to crack down on inflation this year, it may need to be more aggressive in raising interest rates and "shrinking the table".

We expect the US CPI to grow by about 6 per cent year-on-year and the core CPI to be about 5 per cent year-on-year by the end of the year.From the itemized point of view, the growth rate of core commodity prices may slow down, and the price growth rate of core services may remain high under the support of rising rents. Energy and food prices are expected to remain high until the fourth quarter. The above forecasts are consistent with those of the money quantity model, which once again shows that it is more reliable to use the money supply to predict inflation under the disturbance of the epidemic.