A possible reason why economies are at full employment and with that there’s High and persistent Inflation and inflationary pressures. Drawing a possible Phillips Curve, the Inflation line and unemployment rate line intersected at 5.3%.
What has been verified, considering the structural rate of unemployment, the Short Run Phillips Curve shifts upward with Inflation, which means economies sustain and accept full employment with HIGHER PRICES. That becomes consistent with an upward shift in Aggregate Demand described as INFLATIONARY POSITIVE OUTPUT GAP. INFLATIONARY because derives directly from increasing prices, while the Structural Aggregate Supply curve has not changed.
In this excel paper, it’s possible to see how 2021 generated a 2.7% CPI INFLATIONARY GAP, consistent with a 2.6% OUTPUT GAP. However, the long-term trend Real GDP Growth rate = 2.0%, in the past two decades. (United States )
The Median Household Income $70,784 in 2021. Starting at $41,900 in the year 2000, Median Income has increased by 40.67%, although the trend of Real GDP Growth has been 2.0%. In parallel the Consumer Price Index for All Urban Consumers: All Items in the U.S. City Average, 295.62.
In parallel the Consumer Price Index for All Urban Consumers: All Items in the U.S. City Average, 295.62.
Central Banks have only in principle hiked money market interest rates a few times, while being late in grasping the INFLATIONARY pressure in the economy. In 2019 Fed Chairman Powell announced their change in Inflation targeting as symmetrical to 2.0%, which would have seen the Federal Reserve aiming at Inflation slightly above 2.0%, a flexible 2.0%<2.5% range. To do that, the Federal Reserve has shifted the liquidity money supply curve with additional $Trillions of dollars. To contain all of these back to 2.0% Inflation will be very difficult.
Consumer Price Index for All Urban Consumers: All Items in U.S. City Average, same graph, seasonally adjusted and indexed to 1982-1984. CPI Index = 22.5% in August’22 with a peak of 24.37% in Junes’22. The graph draws % change Year on Year.