Thus, negative supply-side shocks can cause declines in both potential output and actual output. That growth will slow or, perhaps, turn negative, other things being equal, is not in doubt. What is less clear is what the ultimate effect will be on the price level (or, more generally, inflation).
Initially the difference between actual output and potential output, the output gap, is likely to be positive, generating inflationary pressures. However, once the demand effects begin to bite, the output gap will narrow and inflationary pressures subside. At this point, it is perhaps worth noting that the impact on prices or inflation may differ depending on the source of the negative supply shock.