Is the Phillips curve affected by prices that are acyclical?

The Phillips curve says that there is an inverse, and probably non-linear, relationship between the inflation rate and the unemployment rate. The inflation rate is expected to rise more and more as the unemployment rate falls (assuming demand increases past full-employment). Some of my links below to previous posts go into more detail and use graphs. If what this article says is true, unemployment might be able to go lower than previously thought before we get high inflation.

See A Key Reason the Fed Struggles to Hit 2% Inflation: Uncooperative Prices Recent studies show that a large segment of the economy, from health care to durable goods, appears insensitive to rising or falling demand by Paul Kiernan of The WSJ. Excerpt:

"Many of the prices consumers pay don’t respond to the strength or weakness of the economy.

For decades, mainstream economists have seen inflation as determined by slack—that is, spare capacity—in labor markets and the broader economy. Too much slack should cause lower inflation; too little should drive up prices. This is captured in the Phillips curve, which shows an inverse relationship between unemployment and inflation.

Recent studies have shown prices in some sectors—such as housing—do indeed rise faster when growth is in full swing, unemployment low and markets frothy. But a large chunk of the economy, from health care to durable goods, appears insensitive to rising or falling demand.

A paper published last month by economists James Stock of Harvard University and Mark Watson of Princeton University found prices accounting for nearly half of the Fed’s preferred inflation gauge, the personal-consumption-expenditures price index, don’t respond to changes in economic activity."

"The new research suggests that to lift overall inflation the Fed may have to stimulate larger price increases in sectors where the Phillips curve still exists to compensate for subdued inflation in those where it doesn’t.

Lately, it’s been a losing battle.

The cyclically sensitive components of core inflation, which excludes food and energy, have accelerated to 2.33% in the 12 months through May from 0.41% in mid-2010, according to the San Francisco Fed, just as falling unemployment would predict. But that has been offset by falling inflation in acyclical categories—such as health care, financial services and most goods—which has slowed to 1.04% from 2.26% in the same period."

Federal policies such as restraint on Medicare and Medicaid payments to hospitals and doctors and increased approvals of generic drugs have ended a decadeslong trend of rapid health-care inflation.

Growth in the power and speed of computer processors has pushed down prices for most electronics and slowed inflation in services like telecommunications and photo processing. The fracking revolution, enabled by sensors and software that allow energy companies to better locate hydrocarbons, has kept oil and natural-gas prices in check throughout the expansion.

Global factors may also play a bigger role than traditional inflation models assume. As emerging markets like China have expanded their share of the world economy, they influence commodity prices more, according to Massachusetts Institute of Technology economist Kristin Forbes. Her study also says transnational supply chains have more closely linked firms’ pricing to global demand and slack."

"The U.S. is now in its longest expansion on record and unemployment is near a half-century low, yet inflation, at 1.5% in May, remains stuck below the Fed’s 2% target.

Fed policy makers fear if consumers and businesses expect such low inflation to persist, they may adjust their own price and wage-setting behavior accordingly. That could cause low inflation to become entrenched"

Related posts:

The Fed chairman says the relationship between inflation and unemployment is gone

Unemployment Isn’t What It Used to Be: The low rate doesn’t take account of low labor-force participation. Wages are a better indication of slack
 
The Phillips curve is alive and well (unless it's dead)

Is There A Neutral Interest Rate? If So, How Much Is it?

Is The Phillips Curve Dead In Japan? Maybe not

Is The Phillips Curve Not Holding Up Well Because The Service And Goods Sectors Are Behaving Differently?

Has the Fed Flattened the Phillips Curve?

Nobody knows what the natural rate of unemployment is today

More on the natural rate of unemployment

How Central Banks Differ In Their Methods Of Calculating Inflation.

Fed Officials Disagree On Threat Of Inflation (from 2009)

Fed Chair Janet Yellen: "there remains considerable slack in the economy" (from 2014)

E-Commerce Might Help Solve the Mystery of Low Inflation

 
Fed officials disagree on how much inflation the current low unemployment rate might cause 

Fed Looks for Goldilocks Path as Jobless Rate Drops