To help policymakers form a judgment on inflation risks and the required monetary policy stance the
OECD has developed an analytical framework based on a set of 'eclectic' Phillips curves estimated for the
two largest OECD economies, the United States and the euro area, which is presented in this paper. This
framework is used in the preparation of the Economic Outlook to explain recent developments in core
inflation, excluding food and energy, based on developments in measures of economic slack (the output
gap), spill-over effects from energy prices onto core inflation and lagged responses to past inflation via
expectations formation. The fact that the knock-on effects from energy shocks onto core inflation appear
small in comparison with the 1970s can be explained by the secular fall in energy intensity, a low and
stable rate of 'mean inflation' -- to which observed inflation reverts after a shock has worked its way
through -- and persistent slack in the aftermath of the bursting of the dotcom bubble.
