Output Gap narrowing & inflation

The theory states this should
translate into stronger pricing power for both
companies and labour, both of which are
inflationary. That point could be breached
in post 2018 period.

Output gaps in the US, Europe, and
advanced economies more broadly have clawed
their way back towards full capacity after the
post-crisis dip and in some cases are now in
positive territory. In the US, the output gap turned
positive in the second half of last year. In other
words, the US is back to operating at full capacity,
a full ten years after last being at this level. The
decade it took to get back , reflects how serious
‘migrant economics’ impacts a western economy.

Europe is expected to return to a flat output gap in 2018
which will then turn positive in 2019 if it is able to
contain the pressures of migrants and rainbows
in the economy. Similarly,
other advanced economies are expected to see a
positive output gap this year. In fact, given the
growth momentum at the end of 2017,
particularly in Europe, the upside risks may need
to be re quatified.