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Does a strong economic recovery after a recession always lead to inflation?

By EconoFact
NO

Economists traditionally expect inflation to increase when the economy is producing more than it normally would. This is called the output gap, and it is defined as the difference between actual national income (GDP) and a counterfactual measure of what the economy could produce if land, labor and capital were utilized at their normal rates. The output gap is likely to shift from negative to positive over the rest of 2021 in response to government spending and low interest rates. But the relationship between the output gap and inflation has been an unreliable predictor of inflation over the past few decades. Two other factors that influence inflation are long-term expectations of inflation among the public and increases in the prices of inputs to the production process, like lumber and oil.

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EconoFact is a non-partisan publication designed to bring key facts and incisive analysis to the national debate on economic and social policies. Launched in January 2017, it is written by leading academic economists from across the country who belong to the EconoFact Network. It is published by the Edward R. Murrow Center for a Digital World at The Fletcher School at Tufts University.
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