An adverse supply shock shifts the short-run Phillips curve right. If people raise their inflation expectations, the short-run Phillips curve shifts farther right.

An adverse supply shock, such as a sudden increase in oil prices, typically reduces the quantity of goods and services that businesses can produce, leading to higher production costs and prices. This situation can shift the short-run Phillips curve to the right, indicating a higher rate of inflation for any given level of unemployment. If people then adjust their expectations upward and anticipate higher inflation in the future, this can further shift the short-run Phillips curve to the right, as workers demand higher wages to compensate for expected inflation, and businesses raise prices in anticipation of higher costs, reinforcing the inflationary process.