NAIRU.

In plain English

NAIRU stands for the non-accelerating inflation rate of unemployment, the estimated jobless rate consistent with inflation neither speeding up nor slowing down. It cannot be measured directly. Economists infer it from models, and the estimates get revised whenever the data surprise them. The concept explains why a central bank might tighten policy while unemployment is still falling. Critics point out that repeated revisions make it a moving target, and that acting on a mis-estimated NAIRU can hold employment down for no reason.

01Why it matters

When policymakers believe unemployment has dropped below this estimate, they lean toward higher interest rates, which shows up in borrowing costs and in how freely employers hire.

02The math, step by step

Suppose a model estimates NAIRU at 4.5 percent. Actual unemployment falls to 3.8 percent, which is 0.7 points below the estimate, so the model predicts building wage pressure. A later revision might move the estimate to 4.0 percent, cutting that gap to 0.2 points.

Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.

03What this is NOT

04Receipts

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