However, the economy also may be affected by supply shocks, or unexpected changes in the aggregate supply of goods and services. An example of a supply shock would be a sudden increase in productivity. Initially, this kind of shock would raise the quantity of goods and services produced relative to the quantity demanded, and thus put downward pressure on prices. At the same time, the increase in real GDP would raise the demand for labor and reduce the unemployment rate. Thus, a falling unemployment rate would be associated with reduced pressure on prices.
Some observers argue that a supply shock is currently having an effect on the economy.
Therefore, standard Phillips curves have over-forecasted inflation recently, although the errors generally have not been outside the historical range of errors. One explanation offered for recent developments is a surge in productivity due to the introduction of new computer-related technologies. While it is still too soon to know for sure what is driving recent developments, the possibility of a supply shock has to be taken seriously. This possibility illustrates the pitfalls in interpreting the implications of the unemployment rate for future inflation. At the same time, however, it is too soon to be sure that the current low level of the unemployment rate does not presage a rise in inflation in the future.