We now have Q1 GDP for the US and Euro Area. While US inflation as measured by CPI/HICP is higher than Euro Area (US core accelerating relative to EA by 0.7 ppts since the pandemic), US GDP growth has also been higher.
Figure 1: Real US GDP (blue), and Euro Area 19 (brown), both in logs 2019Q4=0. 2022Q2 observations for US is GDPNow (5/4), for EA is Cascaldi-Garcia et al. (5/6). Source: BEA and Eurostat via FRED, Atlanta Fed, Cascaldi-Garcia, Ferreira, Giannone, and Modugno, and author’s calculations.
Since in the long term, growth is constrained by potential or full employment GDP, it doesn’t make complete sense to do a diffs-in-diffs comparison of growth pre- and during covid. However, we can see whether the output gaps closed faster in the US vs. the Euro (keeping in mind the caveat that output gaps are exceedingly hard to measure).
Figure 2: US output gap (blue), Euro Area 17 (brown), %. Light brown shading denotes forecast. Source: OECD.
This means that over the three years 2020-22, the cumulative output gap difference between US and EA was 6.6 ppts of GDP.
It’s important to note that the output gap measures the deviation of output from potential GDP, and does not directly incorporate cost-push shocks — so if these estimates are to be believed, the acceleration in inflation is not primarily due to demand pull (relative to potential).