The pandemic has had a much more prolonged effect on labor supply than many expected, and rapid nominal wage growth has accompanied the recent rise in inflation in ways that traditional measures of labor market tightness—such as the unemployment rate gap—might not be capturing.
Many analysts have used data on job vacancies to go beyond a simple unemployment rate gap indicator, and I see merit in such approaches. We should ask how we can better understand the relations among realizations of inflation, inflation expectations, and the rate of inflation to which the economy would gravitate after the effects of temporary shocks have ebbed.