In modern central banking practice, we formalise these intuitions using a concept called ‘potential growth’, which is an estimate of the amount an economy can produce at full capacity. To the extent an economy is not at potential, we say it has an output gap.
7 Looking farther ahead, participants expected the subdued level of inflation to persist beyond this year. Since these projections were made, gasoline prices have moved up, primarily reflecting higher global oil prices–a development that is likely to push up inflation temporarily while reducing consumers’ purchasing power. We will continue to monitor energy markets carefully.