In the 1970s, the prevailing view was that nominal wage inflation led to price inflation, largely because of wage “catch up”; i.e., workers and unions demanding additional wage increases to compensate them for unexpected inflation and to match settlements in other sectors of the economy, such as the public sector.
Countries with high inflation rates tend to find themselves on the steeper portion of the short-run Phillips curve than low inflation countries which are more likely to be on the flatter side. Therefore, ‘trade-off’ between price stability and employment or output even when it does exist, is sharper for countries with relatively high inflation rates than those with low inflation rates. 14.