The estimates incorporated the price increases associated with Russia's invasion of Ukraine, with the knowledge we then had of how the conflict would unfold and its implications. While at the time inflation already appeared to be a global problem, it has since worsened, due to a protracted war, the spread of problems in international supply chains and transportation costs, and the effects of China's weak real estate sector and its zero Covid policy. On top of all this, there was further persistence in a context of significant inflationary surprises and heightened inflation expectations. Thus, we come to the end of the year with a sum of new shocks that were installed in our economy, which already exhibited important imbalances that needed to be corrected. During this period, financial markets have shown high volatility. At home, we have had to face it while immersed in a context of high uncertainty, which peaked in July. In that period, the local exchange market experienced important tensions in its price formation process, particularly in exchange rate derivatives. This led us to announce a foreign exchange intervention aimed at reducing the probability of significant distortions in the operation of other segments of the financial market. This year has not been easy, nor were the previous ones. In this challenging period, the Bank has continued to make progress in various areas.
Retail activity, which was buoyant in May, fell back in June partly due to poor weather conditions. In aggregate, activity was up over the last two months. The construction and civil engineering sector1 recovered in the second quarter of 1997 primarily as a result of seasonal factors. Employment levels held steady in industry, except for the automobile sector, where there was a further contraction, and the building, retail and market services sectors. Wherever possible, companies sought to enhance workforce flexibility via temporary staff and overtime, in order to cope with fluctuating demand and organize themselves for the summer vacation period. __________________ 1  Unadjusted data. BIS Review 70/1997