The two biggest direct components to inflation are energy and housing. We have a
slightly distorted picture here because the prices for both of these were in a slump during the pandemic. Moratoriums, less travel, less commuting, that sort of thing. So
part of this is a reversion to mean.
But on top of that we've had a genuine demand shock as everyone has decided this year to travel. This might've been fine had the companies taken the Covid relief funds and not laid off staff like they were supposed to but they didn't. And they refuse to now pay market rates.
Reminder: there is no such thing as a labor shortage. There are only under-market wages.
But what we've had is this spike in inflation and the thing about inflation is that inflation tends to begat inflation. By this I mean that companies tend to start charging more anticipating further inflation. What does this do? It drives up inflation.
Profits aren't hurting because of inflation. The likes of Exxon and Chevron are making money hand over fist. What does the government do? Raises interest rates to tackle inflation while suspending gasoline taxes.
You can also tackle demand with taxation like a windfall tax. While inflation is above, say, 4%, you could simply charge an additional 30% corporate income tax.
Reminder #2: corporate taxes are only paid on profits.
You could then use this money to help those most hurt by inflation.
As for inflation dropping, that's not surprising at all. The writing was on the wall months ago as gasoline inventories started to rise as the demand-supply mismatch started to correct itself. Next year you'll probably be paying $2.50/gallon for gas.