Phillips Curves and Disinflation In the disinflation process, the economy initially is in equilibrium at point a. To reduce inflationary expectations, policymakers must reduce aggregate demand and push the economy into a recession, increasing unemployment to 8%. As aggregate demand slumps, wage and price pressures soften, reducing inflationary expectations. As these expectations decline, the entire Phillips curve shifts inward, from PC2 to PC1. If the process goes on long enough, the Phillips curve will shift back to PC0. The arrows here show the path the economy must take back to roughly stable prices at the natural unemployment rate.