Global headline inflation has started to ease and

supply chain disruptions have broadly cleared. But

core services inflation remains stubbornly high in a

number of countries.

The pandemic revealed a steeper part of the Phillips

Curve, which is why inflation rose so high so quickly.

But inflation could also decline rapidly without much

damage to growth if the Phillips curve remains steep.

However, the prolonged period of high inflation may be

altering price-setting behaviour as firms and workers

try to make up for past inflation. This could give

inflation a momentum that is harder for central banks

to tame.

Tight labour markets, strong wage growth, and

inflation expectations still above pre-pandemic norms

are all contributing to the resilience of underlying core

services inflation.

Indeed, monitoring these waymarks convinces us that

only an eventual economic downturn can now bring

underlying inflation back to target-consistent rates.

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