The great 'output gap' masks the real threat of inflation

Edward Hadas argues that the so-called 'output gap' is masking the real threat of inflation.

The so-called output gap isn’t as big as it seems. The gap – a measure of slack in the economy – may seem large after over a year of a deep recession. But some of the capacity built up during the boom is useless. That means it may not take a lot of growth before the economy hits inflationary buffers.