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Is inflation dead?


  • Roger E. Brinner


In the past few years the United States has enjoyed the unique economic duet of very low unemployment and declining price inflation. For decades, we have come to associate tight labor markets with accelerating wages and prices. But in 1997, the unemployment rate sank below 5 percent, and neither wage nor price inflation became a problem. Have our inflation processes fundamentally changed for the better? Are we in a new era of permanently better economic performance due to new behavior by our citizens? Or are we simply enjoying good luck in the form of positive supply shocks? A careful reading of the full inflation story reveals that nominal wage inflation has been subdued by exceptionally modest price inflation, according to the author. Real, or price-adjusted, wage inflation has been increasing in response to low unemployment, just as in past decades. Price inflation has been held down by a set of "supply shocks," including a strong dollar, falling energy prices, and a cost-reducing regime shift in the healthcare industry. Inflation is not dead, and as supply shocks shift to neutral or worse, tight labor markets will create a traditional inflation problem.

Suggested Citation

  • Roger E. Brinner, 1999. "Is inflation dead?," New England Economic Review, Federal Reserve Bank of Boston, issue Jan, pages 37-49.
  • Handle: RePEc:fip:fedbne:y:1999:i:jan:p:37-49

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    References listed on IDEAS

    1. Otto Eckstein & Thomas A. Wilson, 1962. "The Determination of Money Wages in American Industry," The Quarterly Journal of Economics, Oxford University Press, vol. 76(3), pages 379-414.
    2. Roger E. Brinner, 1977. "The Death of the Phillips Curve Reconsidered," The Quarterly Journal of Economics, Oxford University Press, vol. 91(3), pages 389-418.
    3. George L. Perry, 1970. "Changing Labor Markets and Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 1(3), pages 411-448.
    4. Robert J. Gordon, 1972. "Wage-Price Controls and the Shifting Phillips Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, pages 385-430.
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    Cited by:

    1. Rebecca L Driver & Jennifer V Greenslade & Richard G Pierse, 2003. "The role of expectations in estimates of the NAIRU in the United States and the United Kingdom," Bank of England working papers 180, Bank of England.
    2. Lynn Elaine Browne, 1999. "U.S economic performance: good fortune, bubble, or new era?," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 3-20.

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