As predicted in the previous report, the decline in inflation was due to the sharp drop in unprocessed food prices. Accordingly, the annual rate of increase in food prices was 7.02 percent at the end of 2010, undershooting the October estimate of 10.5 percent. The slowdown that occurred was sharper than we expected. These developments in unprocessed food prices explain the almost one percentage point deviation in short-term inflation forecasts. In fact, as also illustrated on the slide, inflation excluding unprocessed food and tobacco remained in line with the outlook presented in the October Inflation Report (Figure 3). 2  BIS central bankers’ speeches  Food prices became the main determinant of the course of consumer prices in the last quarter of 2010 as well. Food prices that posted record highs in the third quarter due to the hikes in unprocessed food prices, declined in the last quarter as opposed to the previous years (Figure 4). Moreover, the favorable developments in inflation in this quarter did not remain limited to food prices; quarterly inflation across all goods and services items stayed below the average of previous years (Figure 5). Meanwhile, energy prices, which followed a horizontal course in the second and third quarters of the year, increased in the last quarter parallel to the developments in international oil prices and exchange rates. The core inflation indicators decelerated in the fourth quarter of 2010 compared to the third quarter (Figure 6).
Much of the Basel Committee’s work on big “ideas” that respond to the shortcomings in the regulatory framework identified by the financial crisis is reaching the end stage. The capital rules are set (and, in an increasing number of jurisdictions, coming into force), and the revisions to the LCR have recently been agreed. In 2013, we will seek to set out the specification of the backstop leverage ratio, and the NSFR will be refined between now and the end of 2014. Clearly, we still have work to do, but increasingly it is about getting the technical details correct rather than new far-reaching ideas. Even when the Committee’s policy response to the crisis is complete, much more work will still be needed. Implementation needs to be seen as an integral part of the reform agenda, not a sideline activity. As we examine this issue to a depth that it has not previously been examined, we will inevitably find things that need improvement. Turning a blind eye to these, as may have occurred in the past, is not an option – we need to persevere and find those areas where additional modifications to the regulatory framework are needed to ensure it is effective. If we do not work to improve implementation, we will not embed the reforms into domestic banking systems in the full, timely and consistent manner that is in everyone’s interests. BIS central bankers’ speeches  7