Phillips Curve conundrum

Since 2015, the Phillips Curve – which charts the inverted unemployment rate against inflation – has detoured from its usual correlation.

While it is too early to suggest that the correlation is the inverse of its pre-2015 relationship, it presents a conundrum to traditional economic theory. That theory, specifically, posited that decreased unemployment put upward pressure on wages and a subsequent increase in overall prices (inflation).

It will be interesting to see whether this new correlation manifests as a short-term relationship set to return to normality with further decreased unemployment, or whether the Phillips Curve has reached the end of its useful life.

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