The inflation rate is higher than expected. The Federal Reserve projects that by the end of 2021, the year-over-year price increase will come in at 4.2 percent.

This trend has given conservatives ammunition to call both for less public investment (to reduce potentially excessive fiscal stimulus) and for a faster reversion by the Fed to less monetary stimulus. Both counsels are profoundly wrong because they misstate the source of the inflation.

The prime cause is a series of supply bottlenecks, which create shortages and cause temporary price hikes. These price increases tend to spill over into near substitutes. For example, the shortage of semiconductors creates a shortage of new cars. That then bids up the price of used cars.

But this has nothing whatsoever to do with price inflation driven by excessive demand. If anything, it cuts into demand because consumers are compelled to pay higher prices for some products, which reduces their purchasing power elsewhere. The cure for supply-chain bottlenecks is to restore domestic production, as recommended by the landmark White House report on taking back supply chains.

Another major source of rising in the consumer price index is the increase in housing prices. This is driven by a long-term shortage of affordable homes at one end of the income distribution, and at the other end by the very rich having more money than they know what to do with, bidding up the price of trophy homes.

Once again, policies to douse the recovery to contain this sort of inflation is the last thing the economy needs. It may seem a paradox, but Biden’s Build Back Better program addresses both of these long-term challenges. It contains funds for reclaiming semiconductors and other supply chains, as well as $80 billion for affordable housing.

Given floods and droughts, we may also see more price hikes in some foods. Here again, this is a supply shock that has nothing to do with overheated demand. And again, the long-term remedy is getting serious about dealing with climate change. That also requires more public investment, not less.

In the late 1970s, the U.S. had a severe bout of inflation driven by supply shocks in energy, food, health care, and housing. The Fed’s perverse response was to push interest rates sky-high, creating a decade of stagflation and Republican rule.

Let’s not repeat that.