Unemployment and Inflation — Phillips Curve

This short-run Phillips curve provides a simple visual for discussing inflation and unemployment. In the basic model, lower unemployment can coincide with higher inflation and higher unemployment can coincide with lower inflation. The chart is useful because it makes the direction of the short-run relationship easy to discuss. It should not be read as a permanent or mechanical trade-off. Expectations, supply shocks, productivity, labor-market changes and policy all affect observed outcomes. For that reason, the graph works best as an introduction to a model and as a starting point for explaining why real economic data can move differently over time.