This was due to higher annual inflation rates for the following subgroups: Clothing and footwear by 11.3%, [9.9%] 4 ; Furniture and household goods 11.5%, [10.1%]; Transport and communications 15.3%, [11.1%]; and other goods and services 14.1%, [12.8%]. These developments reflected pass-through effects of the Kwacha exchange rate depreciation by 4.8% over the 12 month period, coupled with higher transport fares and the upward adjustment of electricity tariffs by an average of 25.6% during the period under review. Non-food inflation contributed 6.3 percentage points to the annual overall inflation outturn. 4  6  The numbers in square brackets are for June 2010. BIS Review 148/2010  Broad money and domestic credit 5 Preliminary estimates indicate that growth in broad money (M3), comprehensively defined to include foreign currency deposits, was 7.2% in the third quarter of 2010 down from 13.3% as at end-June 2010, and was above the 4.0% projected quarterly growth rate. In absolute terms, M3 is estimated to have increased to K17,898.9 billion from K16,698.3 billion in June 2010. The outturn in M3 was largely due to the increase in both NDA and NFA. NFA edged up by 12.2% mainly on account of a 15.7% increase in gross international reserves to US $ million as at end-September 2010. The increase in NDA was mainly due to the expansion in lending to the Government. Excluding foreign currency deposits that increased by 30.2% (June 2010, fell by 5.1%), money supply declined by 2.0% compared to the 22.9% growth recorded during the second quarter of 2010.
This question basically relates to the Year-old discussion of “should the central bank prick bubbles or not?” Today asset price considerations are present in central banking practice in many countries – Norway, eurozone or Japan, to name just a few. Norgesbank speaks openly that when setting interest rates it does not ignore developments in asset and credit markets 17 and its inflation report contains an asset price forecast. The ECB’s president Trichet has in turn acknowledged that the monetary pillar of the ECB “contributes to assessing the extent to which excess creation of liquidity and over-extension of credit can be a driving force behind excessively valued assets […] and might reflect the inflating of an asset price bubble” 18 . Bank of Japan said in its “New Framework for Monetary Policy” that “risk factors include […] generating an asset price bubble” and that “in conducting monetary policy, the Bank needs to do its utmost to prevent the materialisation of such potential risks.” 19 A hot issue in today’s discussion about IT is transparency and communication. More and more economists realise that communication is the primary channel of central bank’s impact on the economy and monetary policy is increasingly becoming an art of managing expectations. Lars Svensson argues that current level of central bank interest rates matters very little for future inflation and economic activity, while Michael Woodford claims even that apart from expectations, little else matters 20 . For this reason inflation targeters put an ever larger weight to effective communication.