Another risk is the ongoing discussion in the United States to ward off a sharp fiscal adjustment in 2013. Failure to reach an agreement could significantly hamper growth and increase market volatility. And central banks of developed economies have continued to boost, and even intensify, very expansionary monetary policies, which can bring consequences on capital flows, asset prices, currency parities, commodity prices and credit growth in the other economies, including Chile. So far the domestic effects of these policies have been limited, but they are certainly a source of concern. Finally, in the emerging world, the biggest risk continues to be the pace of economic activity. Incoming data indicate that China has resumed strong growth, but the weakening of Europe and pending discussions in the United States could affect the Chinese economy, and through it the emerging world. Chile would be especially affected because of its incidence in the determination of the copper price. In addition, the recent drop in world trade growth figures is cause for concern. In Chile, despite particularly low inflation, medium-term inflationary risks remain present. The sustained dynamism of Chile’s economic activity has intensified the use of installed capacity, and a strengthening of domestic demand could trigger inflationary pressures incompatible with the inflation target. So far, inflation has remained bounded and has even decreased. Our evaluation is that the recent drop is a transitory event that will be gradually reversed within the next few quarters to return to levels around the Central Bank’s target.
These two anchors, which are enshrined in the Treaty, form the legal basis for our action, but, more than that, they are the basis for the confidence that 76% of euro area citizens have in our currency: this is our essential asset. Paradoxically, at a time when the ECB and the Banque de France are doing more than ever before, criticisms are being raised over their mandate, and whether it should be extended beyond price stability to include debt sustainability or the fight against the health crisis, and over their independence, and whether they should be placed “under political control”. With regard to independence, there are sometimes even strange resonances between Karlsruhe and certain debates in Italy or France. I would therefore like to clarify the reasons behind these two anchors and set out precisely what they contain. What does the future hold for price stability? Our price stability mandate is defined as inflation below, but close to, 2% over the medium term. This 2% figure has been the subject of frequent debate, but it represents the equilibrium point in discussions by economists – who all recommend a target of above zero – and is the target currently pursued by all major central banks. Naturally, there is a huge amount of uncertainty over how the economic environment will evolve, but this is probably less true for inflation. Nonetheless, it is important to share a few insights into its possible trajectory.