Journal Article

Trend Inflation and Implications for the Phillips Curve

Abstract: This Economic Commentary estimates trend PCE inflation and a Phillips curve with time-varying parameters while allowing for trend inflation to affect the frequency at which firms change prices. Since the beginning of 2021, trend PCE inflation has risen well above the FOMC’s 2 percent long-term inflation target, and the most recent estimate of trend inflation in 2022:Q4 is 3.4 percent. With the increase in trend inflation, the Phillips curve slope has risen above its prepandemic level. At the same time, the relationship between current inflation and inflation expectations has strengthened. Together, these results imply that even though a slowing economy would help to bring down inflation through the steeper slope of the Phillips curve, high short-term inflation expectations could put upward pressure on inflation to a larger extent than they had prior to the pandemic.

Keywords: PCE inflation; Phillips curve;

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Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Economic Commentary

Publication Date: 2023-04-17

Volume: 2023

Issue: 07

Pages: 6