In the early 1990s, for example, participants engaged in the collateralized mortgage obligation (CMO) market and in certain types of interest rate derivatives that did not have adequate information about the potential volatility and prepayment risk involved. Consequently, market participants did not appropriately model these risks and suffered significant losses when market interest rates rose sharply in the mid-1990s.
One important factor for the future inflation outlook is the behaviour of fiscal policy. As the energy crisis fades, governments should roll back the related support measures promptly and in a concerted manner to avoid driving up medium-term inflationary pressures, which would call for a stronger monetary policy response.