Output growth throughout the OECD has been rising this year, and several economies including the US, Canada and the UK look as if are reaching their cyclical peak. Other economies, such as France, Italy and Spain, are still operating below capacity, but have been growing rapidly enough to prevent output gaps widening. Output gaps in Europe appear to be small, and Barrell and Sefton (below) calculate they could be approaching zero. This upturn in activity has been unlike most in the post-Bretton Woods era, as inflation has not, until recently, begun to rise. Inflation in the US was, it appears, lower in 1994 than in the previous four years, despite a strong output recovery. The appreciation of the yen, and the subsequent recession have, of course, kept Japanese inflation low. However, exchange-rate movements are part of a process of ‘sharing’ world inflation, and over the past three years there has been little to share. For example, inflation in Europe has been lower than we anticipated 18 months ago, even though a slowdown in activity was already apparent then.