Under these circumstances, the traditional pro-cyclicality of credit emerged once again, fuelling asset price inflation (particularly real estate prices in certain regions of the US and Europe) rather than consumer price inflation. In the past twelve months the scenario changed radically: a severe financial crisis, stemming from the US real estate sector, hit mature economies in general, whereas demand pressures over the availability of limited production factors led to mounting inflation in a global scale. Thus, central banks currently face a much more complex and challenging environment than during the years of the great moderation. Monetary responses have been initially diverse due to the nature of the problems that surfaced, but the priority on the need to preserve price stability prevails. Due to both increases in raw material prices and demand pressures, inflation accelerated sharply around the globe. In mature economies in general, marked by broader levels of idle capacity, higher commodity prices probably explain the bulk of the inflation upsurge. In emerging countries, including Brazil, domestic demand pressures have had a relatively more important role in stoking mounting inflation pressures. As a matter of fact, strong domestic demand in these economies created conditions that enabled initially isolated price pressures to become more widespread. Not surprisingly, monetary policy is currently more and more focused in moderating the pace of demand expansion and containing inflation pressures in the majority of the emerging world.
I am confident that these improved fundamentals will help lessen the impact of the global slowdown on the economy, enhance the ability of the private sector to manage and deal with economic volatility, and provide the economy with a strong foundation to continue with stronger growth and stability in the years ahead. This is all I want to say this evening. I hope it has been useful. And I want to end by wishing the year of the Rat to be a year of plenty, bringing opportunities and good prospects to all of you at the FCCT. Thank you. BIS Review 29/2008  3