The Great Demographic Reversal: Ageing Societies, Waning Inequality, and an Inflation Revival

by Charles Goodhart

There has been recently, in the period 2007–2020, yet another twist in this tale. Whereas the focus in the (unhappy) 1970s was on a (vertical) Phillips curve, the opposite has occurred in the (equally unhappy) years of the GFC and its aftermath. Over the last decade, or so, the Phillips curve, rather than being vertical, has appeared to become almost horizontal, see Diagram 8.5. Unemployment has varied quite a lot, from a peak in 2009 to a low point in 2019, whereas inflation has remained quite low and stable. First, inflation failed to fall (as much as predicted, given the high and rising UE in 2009/2010), and then, after the recovery to much lower levels of UE, it failed to rise from the prior doldrums. The Phillips curve combinations of UE and price inflation are shown, over the years 2006–2018, separately for the USA, UK, Germany and Japan.