As domestic output gaps are difficult to measure, even with the benefit of hindsight, it is perhaps not surprising that measuring and assessing the effects of a global output gap have proved contentious. A clear resolution of the question of how global economic conditions affect domestic inflation may continue to elude us. Overall, global factors do seem to influence domestic inflation.
Most directly, increasing trade with China and other developing countries has led to slower growth in the prices of imported manufactured goods. However, this effect has been offset in the most recent period by the increases in the prices for energy and commodities associated with the rapid growth in these emerging market economies.