["Oxford Bulletin of Economics and Statistics, EarlyView. ", "\nABSTRACT\nDespite being the smallest component of GDP, inventories represent the second largest source of GDP fluctuations. Over the past decades, research in inventory management has proposed competing theories about the primary drivers prompting firms to accumulate stocks, yet consensus remains elusive on the source of inventory cycles. This paper imposes structure on US macroeconomic data and disentangles four shocks related to current and expected demand and supply conditions within a unified framework. We find that at high frequencies sales forecast errors account for the largest share of inventory investment, giving support to the buffer‐stock motive for holding inventories. Shocks to expected demand and supply—which relate to stockout‐avoidance reasons for inventory investment—dominate inventory fluctuations at business‐cycle frequencies. We show that shocks to expected costs generate the missing positive correlation between cost‐driven inventory investment and sales that the literature has struggled to find, and that forward‐looking behaviours are those that lead production to be more variable than sales. Finally, our results offer a sensible narrative around the post‐pandemic period when inventories drove a very high share of GDP fluctuations.\n"]