The euro area economy is in its fifth year of recovery, unemployment is close to its pre-crisis level and the output gaps of most countries have closed. Yet, core inflation continues to be low, notwithstanding temporarily high headline inflation due to higher energy prices. It may look as if the traditional Phillips curve relationship between core inflation and unemployment has broken down over the past five years. During 2012 to 2014, the euro area experienced a “missing disinflation” episode, where inflation stayed at relatively high levels despite high and increasing unemployment. From 2014 to 2017, there was a ... (full story)