Just as puzzling, more recent global developments point in the opposite direction, since, in spite of the ongoing recovery, headline inflation rates in advanced (and a few emerging market) economies remain below target. Clearly, one reason for the low inflation rates is the recent large decline in oil prices. But core or underlying rates of inflation have also been below average almost everywhere.
The seemingly weakened relationship between inflation and economic slack in the cases of the two puzzles seemed to have disposed of the Phillips curve. We will see why that is not true after all.