Maybe inflation isn’t dead after all.
New estimates by economists at Goldman Sachs Group Inc. has found that the output gap --the difference between what an economy is producing versus what it can produce -- has diminished across advanced economies.
The U.S. has pushed past full employment, the U.K. has reached that point, and slack in the euro-area has narrowed (though hasn’t disappeared entirely), according to a new research note from Goldman titled: ‘From Demand to Supply: Our New G10 Output Gap Estimates.’
That means several central banks are already facing capacity constraints in their economies -- a situation that would normally lead to higher prices. The Fed, Bank of England, Bank of Canada, Sweden’s Riksbank and Reserve Bank New Zealand are all likely to increase interest rates over the next year to keep inflation in check, according to Goldman.
The remaining slack in the euro-zone and Japan means both central banks will remain on hold “for quite some time.”
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