Why Inflation Is Structural, Not Temporary
October 20, 2025 · Frisian News
Central banks spent years calling inflation temporary before reversing course. Today's price pressures stem from deep shifts in supply chains, labor markets, and energy policy that interest rate hikes alone cannot fix.
In 2021, Jerome Powell called inflation temporary. By 2023, the Federal Reserve and European Central Bank had hiked rates to levels not seen in two decades. The gap between official forecasts and reality exposed something central bankers would not admit at the time: the postwar inflation regime had broken. Today, price growth across the West sits well above the 2 percent target, and not because people suddenly spent more. The structure of supply itself changed.
Start with energy. Europe severed itself from Russian oil and gas nearly overnight, then scrambled to replace those volumes at three times the price. American shale producers, meanwhile, faced rising extraction costs and fewer incentives to pump more crude. OPEC moved to tighten supply. These were not temporary shocks but choices made by governments and market players who faced real constraints. You cannot undo a geopolitical rupture by raising borrowing costs.
Then look at labor. Millions of workers left the job market during the pandemic and never came back. Some retired early. Others shifted to lower-wage countries or gig work. Aging populations in Japan and Europe mean fewer working-age people supporting retirees. Companies cannot hire their way out of this math by paying lower wages. The demographic dice are loaded. Tight labor markets push wages up, and workers pass those costs forward to customers.
Supply chains remain fragmented. Companies no longer trust just-in-time manufacturing after 2020 and 2021 exposed its fragility. They now hold larger inventories, build redundancy into production, and pay more for logistics to avoid chokepoints. These decisions make goods more expensive. They also make the economy more resilient, which means stable, higher prices rather than cheap goods and boom-bust cycles.
Central banks can slow demand by making money expensive. They cannot fix demographic decline, rebuild trust in global supply lines, or lower energy prices set by geopolitical conflict. For households and small businesses, this means a new baseline. Real wages stagnate. Borrowing costs stay high. Inflation sticks around at 3 to 4 percent instead of 2. Those in power got the inflation wrong, then acted too late. Now we all pay the price.
Published October 20, 2025 · Frisian News