Who is really in the driver's seat? The elusive relationship between jobs, wages and prices

Ed Smith, head of asset allocation research at Rathbones, takes a look at the breakdown of the 'Phillips curve' relationship.

Despite UK and US unemployment being very low, wage growth is muted. In economics, this relationship between a country's employment conditions and inflation is known as the 'Phillips curve'. In theory, as unemployment declines, the rate of inflation increases, highlighting the trade-off that policymakers face. But empirical evidence in recent decades has cast doubt on this link. There are several plausible explanations for this apparent breakdown in the relationship and one is that globalisation has increased the importance of the global cycle.  Indeed, there is evidence global com...