Technological advancements, while also reducing distribution costs, can limit firms’ pricing power by facilitating price discovery by customers. For example, the advent of online retail platforms has greatly increased price transparency among consumers as the share of people searching for information online has risen continuously in the euro area. The downward pressure on mark-ups and, hence, prices associated with the spread of e-commerce is consistent with an erosion of euro area firms’ profit margins, which did not return to their pre-crisis levels until late 2014. Empirical analysis does not, however, find robust evidence that mark-up shocks have been a particularly dominant determinant of disinflationary tendencies since the crisis. In any case, these forces are only temporary: they can move inflation away from its long-run trend, even for a protracted period of time, but cannot affect trend inflation itself, unless they infiltrate inflation expectations. It is through inflation expectations that shocks to the inflation formation process which would otherwise have no relevance for a central bank can become a monetary policy problem. This brings me to the third element in the Phillips curve – its intercept – which is determined by inflation expectations. Inflation expectations In normal conditions, longer-term inflation expectations should be unaffected by transitory shocks, which typically dissipate over the medium term. However, recurrent shocks leading to a protracted period of low inflation can be misinterpreted as a lasting decline in trend inflation, and could jeopardise public faith in the central bank’s commitment or ability to deliver on its objective.
With fiscal consolidation beginning next year when the economy firmly recovers, the scheme sets a limit of fiscal burden at approximately 60% of the GPD which is still quite a manageable limit. The environment is therefore becoming more optimistic, the business prospects are becoming bright, and one should now plan for growth. What then, ladies and gentlemen, are the issues that we should pay attention to when we plan for growth? Preparing for rapid growth For emerging markets like ours, I think we have to address issues both at macro and micro levels. At the macro level, the authority has to ensure that there is adequate infrastructure to handle high volume of transactions safely and efficiently. The need here covers not only that of the point of sale hardware and communication technology. The problem is that these things become obsolete quickly and one has to ensure that the domestic system in use is compatible with the international system, as well as the level of security required. But far more important is the financial and legal infrastructure. I will highlight a few, starting with First, the need to clearly define the rights and obligations of card issuers, card users and other parties involved in the transactions particularly in case of frauds. In Thailand, we have now drafted the Credit Card Act to set this framework but its enactment is still pending. Secondly, the need to set up a good credit information system to help card issuers in their risk management.