“Given the conclusion that the country is experiencing an output gap, an analyst would expect a further decline in the rate of inflation in the next year.” Why wouldn’t he expect mean reversion and accelarating inflation? My guess is, because at least one of GDP growth, unemployment rate or capacity utilization rate is a leading indicator for inflation. I suspect GDP growth could be.
Output gap means economy slowing so prices fall.
output slowing with lower capacity utilisation, rising unemployment, slowing GDP - all of the above