A sustained rise in medium-term inflation expectations would represent a threat to our price stability mandate and would not be tolerated. Nevertheless, we always need to be careful about inflation – even in an environment of ample spare capacity. Let me focus on one issue, commodity prices, for a moment. Surely some of the businesses in the audience have faced the challenge of sharply rising oil, food or metal prices in recent months. For example, the spot GSCI – a broad measure of commodity prices – has risen more than 35 percent over the past year. This was in train before the upheavals in the Middle East and Africa raised market concerns about potential disruption to oil supplies, pushing energy prices – though not other commodity prices – still higher. Commodity price pressures are pushing measures of headline inflation above measures of core inflation, which, as I mentioned, exclude food and energy prices. You may have concerns that the rise in commodity prices will turn out to be persistent and, if so, how this might impact the inflation outlook. 4  BIS central bankers’ speeches  From a policymaking standpoint, there are important factors that suggest that it would be unwise for the Federal Reserve to over-react to recent commodity price pressures by raising interest rates soon. Why? First, despite the general uptrend, some of the recent commodity price pressures are likely to be temporary – due to poor weather or geopolitical uncertainties. This is certainly what is anticipated by market participants.

Existing databases, models, analytical tools and forecasting and projection apparatuses have been overhauled and enhanced, and new ones have been added. Through our Department of Research we have invested in all areas of micro- and macroresearch that are directly and indirectly beneficial to our economic and monetary analysis. We have launched research initiatives across European countries to understand how economies work and what drives innovation, productivity, competitiveness, growth, employment, equality and so on. Let me mention just a few examples of such initiatives undertaken by the ECB and the Eurosystem: •  There is the Competitiveness Research Network, known as CompNet. Its objective is to identify what drives the dynamics of competitiveness and productivity across EU countries and heterogeneous firms, and relate the findings to policy  7  See van Beers, Bijlsma and Zwart, “Cross-country insurance mechanisms in currency unions: An empirical assessment”, Bruegel Working Paper, 2014/04. 8  See Hepp and von Hagen, “Interstate risk sharing in Germany: 1970–2006”, Oxford Economic Papers 65, 2013. 4  BIS central bankers’ speeches  outcomes. CompNet has already assembled millions of data points and observations in order to capture “non-price competitiveness”. This initiative is already showing that we need to augment our analyses with a global value chains dimension, as the internationalisation of production matters. Had we had anything similar prior to the crisis we would have been in a better position to anticipate the effects of the propagation of the crisis along the supply chain. •  There is the Household Finance & Consumption Network (HFCN).