How Much Has the Cooling Economy Reduced Inflation?

RePEc Short ID: pba542
ORCID iD: 0000-0003-3967-1453

Barnichon, Régis; Shapiro, Adam Hale

Journal Article

How Much Has the Cooling Economy Reduced Inflation?

Abstract: Inflation still lies somewhat above the Federal Reserve’s 2% goal after slowing significantly since its spring 2022 peak. Analysis shows that two labor market indicators—the ratios of job vacancies to unemployed workers and of vacancies to effective job seekers—are particularly informative in determining excess demand’s impact on recent inflation. The measures suggest that declines in excess demand pushed inflation down almost three-quarters of a percentage point over the past two years. However, elevated demand continued to contribute 0.3 to 0.4 percentage point to inflation as of September 2024.

Keywords: Phillips Curve; inflation; job vacancies; labor market; job vacancies to unemployment ratio;