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I'm not much of a believer in the Phillips Curve, the trade-off between employment and inflation, but with all the stagflation talk, it's worth taking a look.

This data is from 2000 to the present. The X-axis is the unemployment rate and the Y-axis is the trailing 12-month core CPI. The arrow points to the data from January and December.

All the data I used is from the government so consider it at your own risk. Actually, I'm rather surprised by how well the curve holds up, meaning the dots seem to run diagonally from lower right to upper left. (Well, sort of...the R-squared is 0.3734.) If we're in stagflation, then this relationship should breakdown and the dots would start drifting to the upper right. So far, that isn't happening.

At least, not yet.

Posted by edelfenbein at February 21, 2008 11:11 AM