Given this, when prospects for a sustainable improvement in economic activity are widely acknowledged in view of efforts to strengthen the foundations for economic growth and the spread of policy effects, people expect a rise in prices based on the relationship between economic activity and prices at a future point in time – in other words, inflation expectations will rise.
Meanwhile, in the corporate sector, better prospects for economic activity and sales will enable firms to ease price competition and pass higher costs on to selling prices. As a result, prices for the present period will likely incur upward pressure, thereby shifting the entire observed Phillips curve upward, or making the curve steeper than before.