In countries like the United States where the expansion was furthest advanced, underlying inflationary pressures were of increasing concern, as were rising debt levels. Historically high current account imbalances and global stock market valuations went hand in hand with large and often volatile movements in the value of major currencies. Recognising remaining vulnerabilities in the global financial system, the chapter refers to recent work to promote financial stability and to help manage crises should they occur. Despite many countries nearing, or temporarily exceeding, sustainable output levels and a sharp rise in oil prices, core inflation remained subdued. This reflected growing competition in global markets and stronger productivity growth restraining unit labour costs.
Some evidence suggests that inertia in wage and price formation is higher when inflation is low.
This could ease central banks' ability to maintain a desired rate of inflation, but might complicate the task of restoring price stability once lost. However, financial imbalances worsened as strong demand and wealth gains led to lower saving and a widening current account deficit in the United States, while in Japan both private saving and the budget deficit increased. World trade appeared to have increased only moderately. However, a marked rise in the global current account discrepancy may indicate that export growth has been underreported. Recovery from the crisis in the emerging markets Despite a wide cyclical divergence both within and between regions, macroeconomic performance was generally favourable in the emerging economies, with growth strong and inflation generally remaining under control, even in economies such as Brazil and Russia that had faced large devaluations.