The higher international prices of foodstuffs have a strong impact on inflation in these economies, considering that they weigh more in their CPI baskets. Inflation forecasts for 2011 have been raised everywhere. Worth noting is the case of emerging Asia, where by mid-2010 the market consensus expected inflation to average 3.8 percent annually this year, and revised it upward to 4.8 percent last March (figure 4). The baseline scenario assumes that during this year the external inflation relevant to Chile will exceed December’s forecast. In this scenario, the central banks of several economies have either started or continued their monetary policy normalization processes, implying that inflation might be temporarily above their targets, which coincides with the market consensus expectations. Some of them have continued applying alternative measures to tone down increases in liquidity and credit, such as China, India, Brazil and other countries in the region. In some developed economies, although monetary policy has remained very expansionary – with unconventional measures and record-low interest rates – policy makers have explicitly exposed their concerns about future inflation and a few have even considered the option of beginning their cycle of normalization sooner. Thus, in the U.S. and Europe, market expectations regarding the timing of the process’s kick-off have changed (figure 5). Hence, the outlook for world economic growth is somewhat brighter than it was last December. Actual output data in developed economies, especially in the U.S., have exceeded expectations and market consensus projections have been revised upwards.
8  BIS central bankers’ speeches  Figure 6 GDP growth (percent) 8  8  6  6  4  4  2  2  0  0  -2  -2  -4  -4  -6  08  09 Annual change  10  11 (1)  -6  Quarter-on-quarter change (2)  (1) Dark blue shows growth range for GDP forecast for 2011 in Monetary Policy Report of March 2011. (2) Seasonally-adjusted series. Source: Central Bank of Chile. Table 2 Economic growth  (annual change, percent)  2009 GDP Domestic demand Domestic demand ((w/o inventory change) Gross fixed capital formation Total consumption Goods and services exports Goods and services imports Current account (% GDP)  -1.7 -5.9 -2.9 -15.9 1.9 -6.4 -14.6 1.6  2010 5.2 16.4 11.5 18.8 9.3 1.9 29.5 1.9  2011 (f) 5.5-6.5 7.6 8.7 13.9 7.0 6.8 9.6 1.2  (f) Forecast. Source: Central Bank of Chile. BIS central bankers’ speeches  9  Figure 7 MPR and expectations (percent) 9  9  8  8  7  7  6  6  5  5  4  4  3  3  2  2  1  1  0  0  07  08  09  10  EES Mar.11  11  FOS 2Q Mar.11  12  13  MPR  Source: Central Bank of Chile.