The inflation-unemployment relationship is not straightforward

Does the Phillips Curve still hold? It's a question that economists seemingly never tire of. The Bank of England’s chief economist, Huw Pill, commented in November that “the Phillips curve has not disappeared”, just as Fed economists published a paper entitled “Who Killed the Phillips Curve? A Murder Mystery”.

For something that arouses so much debate, the Phillips curve itself is relatively straightforward, setting out that lower unemployment is associated with higher inflation (and vice versa). Its underlying logic dictates that when unemployment is low, employers will have to offer higher wages to fill vacancies, putting upward pressure on inflation. It might sound like a dusty academic debate, but weighing the usefulness of the Phillips curve matters.