Reflecting these influences, the price index for personal consumption expenditures (PCE) increased 3.4 percent over the four quarters of 2007, up from 1.9 percent in 2006. Core price inflation – that is, inflation excluding food and energy prices – also firmed toward the end of the year.
We now must determine the reasons for the unexpected results from QIS4. Do they reflect actual differences in risk among respondents when prior supervisory information suggested more similarity in credit quality? None of the participating banks has completed their databases and models for all of their risk areas. In some cases, this created results that would not be reliable for implementing Basel II.