This small share helps to explain why the pass-through of commodity prices into core measures of inflation has been very low in the United States for several decades. Third, the Federal Reserve’s success in anchoring inflation expectations has also been important in limiting pass-through. Since 1984, for example, when the Federal Reserve began to achieve success in driving down and then subsequently anchoring long-term inflation expectations, there has been very little evidence of commodity price pass-through into core inflation. In contrast, prior to 1984, when inflation expectations were much less wellanchored, pass-through did occur and, at times, played an important role in pushing underlying inflation higher. This leads to our final issue – the importance of inflation expectations in shaping the inflation outlook. Rising inflation expectations tends to push up inflation in a number of ways – by reducing the expected cost of borrowing at a given level of interest rates, by pulling forward buying decisions to beat future expected price increases, and by encouraging more aggressive price and wage setting behavior. In a world of unanchored inflation expectations, commodity price pressures would more easily be passed through into core inflation. Fortunately, inflation expectations remain well-anchored. This can be seen in all three major measures of inflation expectations. First, market-based measures of inflation expectations are generally well-behaved.
The economic activity expansion in the first quarter relied heavily on the industrial sector growth, while the agriculture and services sectors marked a positive but weak growth. By contrast, construction sector continued to contract. Available information on the second quarter suggests that the economy performed better, mainly reflecting the high fiscal stimulus during this period. BIS central bankers’ speeches  1  From the demand components perspective, economic growth during the first half of the year owes mainly to higher exports and public spending over this period, while the contribution of consumption and private investments appear weak. Though monetary stimuli increased during the last quarter, uncertainties about the future contracted consumption and private investments. These uncertainties are reflected in a cautious behaviour of Albanian households and businesses and their reluctance to take risks. Their higher inclination to save and the lower degree of borrowing improve the private sector balance sheets but impact negatively the aggregate demand and medium-term economic growth. Performance of fiscal indicators in the first six months of the year reflected an expansionary fiscal policy, which was manifested in higher budget spending and fiscal deficit. This stance was more noticeable in the second quarter. The increase in budget spending impacted positively on the economic growth over this period, but the overall impact of the fiscal policy will depend on the degree of observing the budget indicators adopted for 2013. Public spending marked 12.2% annual growth in the first half of this year, influenced heavily by capital spending.