2.3 Inflation: Key question for 2022 is whether inflation is a transitory spike or a structural inflection Transitory inflation spike (post-WWII bottlenecks): Driven Structural regime inflection (60s-70s): Years of tight economy by reopening and bottlenecked consumer economy and sustained policy errors permanently shifted inflation up 0 2. n o i s r Headline inflation (Y/Y) Headline inflation % (Y/Y) e 1 V 202 25 Post-WWII 25 r e b o t readjustment c 25 O 20 20 ed t a d p u es v i 15 Korean 15 t ec p s War squeeze er P e v i t 10 10 u ec x E G C B . ed 5 5 v er es r s t h g i r l 0 0 l A . p u o r G g n -5 -5 i t l u 1945 1950 1955 1960 1965 1960 1965 1970 1975 1980 s n o C n o t s Analogy highlights transient pressures related to Analogy highlights slow-motion breaking of inflation o B y b 1 systemic bottlenecks and consumption surge regime related to tightness and policy errors 2 0 2 © Movement is up and down but not a structural inflection Movement is up and up with ever-higher lows t h g i r y p o 14 C Source: BLS, BCG