Because a targeted attack on a hub risks bringing the heart of the system to a standstill, whereas random attacks are most likely to fall on the periphery. This result carries important policy implications. Long periods of apparent robustness, where peripheral nodes are subject to random shocks, should offer little comfort or assurance of network health. It is only when the hub – a large or connected financial institution – is subject to stress that network dynamics will be properly unearthed. When large financial institutions came under stress during this crisis, these adverse system-wide network dynamics revealed themselves. The third result is the well-known “small world” property of connected networks. 11 The origin of this was a chain letter experiment by Stanley Milgram in 1967. This showed that the average path length (number of links) between any two individuals was around six – hence “six degrees of separation”. Although networks tend to exhibit local clustering or neighbourhoods, certain key nodes can introduce short-cuts connecting otherwise detached local communities. This small world property has again been found across a range of physical networks, including the World Wide Web and forest fires. 12 Its implications for network robustness are subtle. In general, however, it will tend to increase the likelihood of local disturbances having global effects – so-called “long hops”. That could occur between different institutions or between different nation states. Either way, a small world is more likely to turn a local problem into a global one.
Headline CPI went from 1.5 percent annually in  BIS central bankers’ speeches  1  October 2013 to 4.7 percent in May 2014 (figure 1). We expected this rise in inflation to some degree, because it came from a low level and the peso depreciation we have been observing since mid-last year also had an impact. A look into inflation rates over the past six months shows that the biggest increase has concentrated in those components of core inflation of goods and services whose prices are connected – directly or indirectly – to the exchange rate (figure 2). We have also seen an acceleration of nominal wages in recent months. Inflation has behaved thus in a context of sharply decelerating output and demand. In the first quarter this year, output grew 2.6 percent annually, confirming the slowdown that began in the third quarter of 2013. Overall, this outcome was in line with forecasts, but composition shifted towards higher growth in those areas more closely linked to the external sector – like some branches of manufacturing and agriculture – and slower growth in those areas tied to domestic demand, especially services. Leaving out inventories, y-o-y growth in domestic demand picked up from end-of 2013, basically due to a milder drop in investment – especially its machinery & equipment component – and increased dynamism of public expenditure. Domestic spending is still weak, however. Investment has posted negative variation rates for three quarters in a row, while private consumption, mainly of durables, is slowing down (figure 3).