At a global level, the buoyancy of EMEs has resulted in higher commodity prices, which coupled with some specific factors, such as weather problems impacting agricultural production and tensions in the Middle East and North Africa, have pushed food prices to record highs and oil prices to very high levels as well. This price shock, coupled with strong domestic activity, results in inflationary pressures that must be contained with tighter monetary policy. Contrary to the situation in advanced economies, international price (supply) shocks find fertile territory to propagate to wages or other prices when the economy is in a strong cyclical position. BIS central bankers’ speeches  1  This uneven recovery of the world economy is resulting in an uneven monetary policy landscape (Figure 2), which strengthens currencies in EMEs and induces capital inflows to these countries. Free trade and export-led growth have been a successful growth strategy in developing countries, which see the strengthening of their currencies as a threat to this strategy. Consequently, many countries have been trying to fight the appreciation via capital controls and exchange rate intervention. China and the U.S. deserve special mention, as they are at the center of the tensions of the adjustment. China has been the growth engine of the world, and it would not be an exaggeration to call it the “grower of last resort” for the global economy. They have decided to appreciate gradually, much more slowly than most EMEs and commodity exporters.
José De Gregorio: Adjustment in the global economy Keynote address by Mr José De Gregorio, Governor of the Central Bank of Chile, at the 2011 Institute of International Finance (IIF) Latin American Economic Forum, Calgary, 27 March 2011. *  *  *  I am grateful to Luis Oscar Herrera, Enrique Orellana and Tatiana Vargas for valuable comments. Thank you very much for the invitation to speak at this 2011 IIF Latin American Economic Forum. The last few years have been the most challenging for economic policy around the world in many decades. From an unprecedented inflationary shock in 2007–08, the global economy went through a financial crisis and a recession in 2008–09, of a scale not seen since the Great Depression. Now, we are experiencing a process of recovery with strong inflationary pressures and tensions in the world economy as a result of asymmetries in this process. The purpose of my talk today will be the global adjustment, how it has been proceeding and what the current challenges for policymaking are, with special focus on the asymmetries and their implications for economic policy. The uneven recovery The world economy is growing unevenly and subject to many tensions. Most advanced economies are recovering from the crisis, but they still have high rates of unemployment and excess capacity, and this is expected to last for some time.