In particular, a substantial reduction in the response of wage and price inflation to demand pressures in goods and labour markets (measured by the “output gap” or the deviation of the actual rate of unemployment from its “natural” rate) is often considered to have occurred in the years known as the “Great Moderation”, even if there appears now to be some evidence of a possible reversal of this trend.5 In any case, the augmented Phillips curve remains a useful tool for policymakers, informing their decisions about monetary and fiscal policy, with the goal of leading, in turn, to more stable and predictable economic outcomes.
While the domestic economy was predicted to slow considerably, our forecasts still pointed to positive (albeit lower) growth for 2023 as a whole. We will be updating these projections in our next Quarterly Bulletin in early March.2 Domestic headline inflation continues to be high at 8.2 per cent in December, but moderating energy prices, particularly gas prices, points to an improving outlook.