My story is of course too simple — just a demand surge, rather than both increased demand and disrupted supply — but the resulting characteristics resemble the economy we have been experiencing: Prices soar. Corporate profits climb. Income for drivers climbs, but not as much as prices. Real wages actually fall. Even though worker incomes are up, labor’s share of income is down. Labor markets are tight, but capital is the constraint on supply. Inflation has soared, but it soared because of supply/demand dynamics — what I will call “surge pricing inflation.” Economists would say the market hit the vertical part of the supply curve.

And this is key to our miss: The inflation in this example is not driven by the two primary sources that traditional Phillips-curve models used by policymakers, researchers, and investors consider: (1) labor market effects via unemployment gaps, and (2) changes to long-run inflation expectations.

In these workhorse models, it is very difficult to generate high inflation: Either we need to assume a very tight labor market combined with nonlinear effects, or we must assume an unanchoring of inflation expectations. That’s it. From what I can tell, our models seem ill-equipped to handle a fundamentally different source of inflation, specifically, in this case, surge pricing inflation.