For example, the influence of labor market conditions on inflation in recent years seems to be weaker than had been commonly thought prior to the financial crisis. Although inflation fell during the recession, the decline was quite modest given how high unemployment rose; likewise, wages and prices rose comparatively little as the labor market gradually recovered.
Whether this reduction in sensitivity was somehow caused by the recession or instead pre-dated it and was merely revealed under extreme conditions is unclear. 18 Either way, the underlying cause is unknown.