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What if the disappearance of the Phillips curve was due to the oil price?
In the recent period, the link between headline or core inflation and the economic cycle has disappeared (the Phillips curve has disappeared) in all OECD countries. This is most often attributed to a change in the functioning of labour markets and a decline in employees’ bargaining power. But in the recent period we have seen that the link between the oil price and the economic cycle has also disappeared, which can to a large extent be attributed to the increase in oil production in the United States. We seek to determine what fraction of the disappearance of the link between headline or core inflation and the economic cycle is explained by the link between the oil price and the economic cycle. Core inflation also depends on the oil price through second-round effects. We see that all of today's low inflation and half of the low core inflation is due to the disappearance of the link between oil prices and the cycle.
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Natixis
Based across the world’s leading financial centers, Natixis CIB Research offers an integrated view of the markets. The team provides support to inform Natixis clients’ investment and hedging decisions across all asset classes.
Patrick Artus
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