Nor is the growth of the economy falling short of potential growth; if anything, over the past year aggregate demand has risen considerably faster than potential output (something that is possible only with either considerable spare capacity or a rise in absorption from the rest of the world). At this point, the gap between actual and potential output is probably not that large.
Moreover, while the annual pace of growth of utilities prices – a prominent feature of the past couple of years – has probably peaked, it is likely to remain high. Over the coming year, we think that inflation will be pretty close to where it is now, consistent with the target.