We are determined not to let inflation become entrenched through second-round effects. It is this determination that would permit us to keep expectations where they are. WSJ: Since the current rise in inflation is due in large part to the buoyancy of emerging countries, are you worried that controlling inflation is to some extent out of your control? Noyer: It’s true that there are factors beyond our direct control. But there are also structural answers to these factors, such as development of production, in order to limit the rise in agricultural prices. There are possibilities, and the level of prices helps a lot to develop production and alleviate the pressure. When we look at the global picture of economy, there are emerging countries which have suffered less from the economic crisis and advanced economies which had to recover from a much lower growth and even recession. That in turn creates problems for emerging economies, including the fact that some of them have hesitated to run the fiscal and monetary policy that would have been absolutely appropriate given the state of their economies. That calls for a better understanding of each other’s state of economic development and economic policies. That’s what the G-20 wants to do through the framework for strong and sustainable growth initiative. WSJ: The G-20 is looking at various factors to assess the nature of global imbalances, and the debate often focuses on the part that foreign exchange rates should play in this assessment.
Noyer: There was probably during the period of time that preceded the crisis an excessive belief that the combination of the growing importance of emerging economies, which brought a disinflationary force in the manufacturing sector, and the credibility attained by central banks globally had created a world where inflation could be kept at bay quite easily. There was insufficient focus on some of the effects of low interest rates for a long period, like the fact that it facilitated asset bubbles and asset bubbles may lead to burst bubbles and economic and financial crisis or the transmission into pressure on inflation. We’ll probably be more attentive in the future. WSJ: The ECB has upped its vigilance on inflation in the euro zone, but if interest rates were to b e raised earlier than expected, it could be a problem for countries in the periphery that depend on the ECB’s support through its bond-buying program. Would it be possible for the ECB to raise rates to address rising inflation in core countries while keeping nonstandard measures in place to prop up peripheral states? Noyer: Generally speaking, it is technically feasible. I am not signaling that we are going to raise interest rates. As a matter of fact we have done a lot to start unwinding nonstandard measures. Excess liquidity in the euro-system has decreased dramatically and the situation has normalized. Now the market is working much better.