paper no. 30555 ( october 2022 ). 12 the phillips curve is plotted using an average of our two preferred measures of core inflation, which are less affected by volatile price components, such as food and energy, than total inflation is. the link between excess demand in the economy and inflation is more evident using this measure. but as the economy moved further into excess demand — beyond anything we had seen in recent decades — inflation became more responsive. prices began to rise more frequently, even with relatively small increases in demand ( chart 3, red dots ). 13, 14 13 a growing body of recent research points to nonlinearities in the phillips curve. see for example m. c. dao, p. - o. gourinchas, d. leigh and m. prachi, “ understanding the international rise and fall of inflation since 2020, ” journal of monetary economics 148 ( s ) ( november 2024 ) and a. blanco, c. boar, c. j. jones and v. midrigan, “ the inflation accelerator, ” national bureau of economic research working paper no. 32531 ( may 2024 ). see also p. benigno and g. b. eggertsson, “ it ’ s baaack : the surge in inflation in the 2020s and the return of the non - linear phillips curve, ” national bureau of economic research working paper no. 31197 ( april 2023 ). 14 to some extent, the steep part of the empirical phillips curve likely also reflects temporary shifts in the curve due to supply shocks and movements in short - run inflation expectations rather than a structural nonlinearity. for this view, see p. beaudry, c. hou and f. portier, “ the dominant role of expectations and broad - based supply shocks in driving inflation, ” national bureau of economic research working paper no. 32322 ( april 2024 ). - 9then, as our successive interest rates increases chipped away at excess demand, we saw the same responsiveness on the way down. inflation declined faster than normal. the idea that inflation could start to respond more dramatically to small changes in demand — what economists call a nonlinear phillips curve — has been around for a long time. 15 we just hadn ’ t had enough excess demand in recent decades to experience it. before we move on, i want to tie excess demand back to those global supply challenges i spoke about earlier. the post - pandemic period was unique in

montreal, quebec, october 3, 2023. ) 18 for a theoretical model that exhibits this effect, see s. murchison, “ non - homothetic preferences and the demand channel of inflation, ” bank of canada staff working paper ( forthcoming ). in addition, m. harding, j. linde and m. trabandt, “ understanding post - covid inflation dynamics, " journal of monetary economics, 140 ( s ) : 101 – 118 ( november 2024 ), present a model in which the inflationary impact of cost - push shocks is greater when marginal cost and inflation are already elevated. - 10 - why don ’ t we want inflation below 2 %? now that inflation is back around 2 %, what should monetary policy aim to do going forward? our inflation target is symmetric, which means we are equally concerned with inflation above or below 2 %. we just lived through a period of high inflation. for many young canadians, it was the first time in their lives that inflation was noticeable. and while the average wage has kept pace with prices, we also know that averages don ’ t tell the whole story. 19 income growth has not been even across households, and cost increases affect people differently, depending on their spending patterns. for instance, we know low - income families spend a relatively larger share of their household budgets on necessities like food and energy, which increased more than overall consumer prices. ( chart 4 ). 20 19 prices have increased by 19 % since 2019, while wages have risen by 26 %, according to data from statistics canada. prices are measured by the consumer price index, while wages are average hourly wages of all employees from the labour force survey. alternative measures of compensation also indicate that wages have kept up with prices, although the magnitudes of the increases vary. 20 during the recent inflation surge in canada and many other countries, the prices of cheaper brands of many food products grew faster than prices of the more expensive brands. see a. cavallo and o. kryvtsov, “ price discounts and cheapflation during the post - pandemic inflation surge, ” journal of monetary economics, 148 ( s ) ( november 2024 ). in addition, low - income households in canada experienced more inflation than other households. see o. kostyshyna and m. ouellet, “ household food inflation in canada, ” bank of canada staff working paper no. 2024 - 33 ( september 202