Demand is becoming a bigger driver of US inflation: Demand-driven components contributed +1.2 percentage points to the +3.4% YoY increase in PCE inflation in August, the largest contribution since September 2023. At the same time, supply-driven factors added +1.0 percentage point, while ambiguous factors accounted for another +1.2 percentage points. This contrasts with the post-pandemic inflation surge, when supply disruptions were the main driver. In 2022, supply-driven components contributed an average of +3.1 percentage points per month to headline PCE inflation, compared with +2.6 percentage points per month from demand-driven factors. This is a key distinction for Fed policy, as rising interest rates can slow demand, while their impact on supply-side pressures is limited. The composition of US inflation is shifting.