Inflationary pressures were low during the last quarters. Reflecting also the Bank of Albania’s prudential monetary policy, inflation settled within its target in 2012. The increase in annual consumer prices was 2.4% at year-end, while the annual average inflation rate was 2%. The inflation rate increased progressively during the first three quarters and fell slightly during the fourth quarter. Inflation volatility was mainly driven by food prices, which were affected by the international market and domestic production. The effect of other basket goods’ prices on inflation was low and slightly volatile. Regulated or administered price inflation was insignificant, while higher prices for consumer goods, oil and primary commodities in the global market did not cause any higher inflation in the Albanian economy. From the macroeconomic viewpoint, all determinants of inflation contributed to keeping it at low levels. The incomplete utilization of productive capacity was associated with businesses’ low demand for labour, hence no pressures for increase in wages and labour costs. Also, the weak demand for goods and services reduced businesses’ ability to dictate final product prices and affected low levels of profit margins. On the other hand, low increase in the global market prices and the exchange rate stability helped in keeping import prices in check. Finally, expectations for a low inflation in the medium term were reflected in stable costs, prices and interest rate in medium-term and long-term contracts concluded in the labour market, in consumer goods and financial instruments.

And as a purely non-traded good, housing isn’t affected as directly as business capital by the prospective changes in the UK’s terms of trade. So any impact of greater uncertainty may on this occasion take longer to come through. But I fear I’m already straying into the temptation I’ve warned against, to over-interpret incoming data. The wiser course is to wait for the November Inflation Report, which gives us a good opportunity to reflect more systematically on the news since August, and what it implies – if anything – for the medium-term outlook. Thank you. 13  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  13  References Bank of England, 2016, August 2016 Inflation Report, http://www.bankofengland.co.uk/publications/Documents/inflationreport/2016/aug.pdf Bank of England, 2012, “The distributional effects of asset purchases”, Quarterly Bulletin, 2012 Q3, http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/qb1203.pdf Bean, C., 2012, “Pension funds and quantitative easing”, speech given to the National Association of Pension Funds’ Local Authority Conference, http://www.bankofengland.co.uk/archive/Documents/historicpubs/speeches/2012/speech573.pdf Bernanke, B., 2015, “Why are interest rates so low?”, Brookings, https://www.brookings.edu/blog/benbernanke/2015/03/30/why-are-interest-rates-so-low/ Bloom, N., 2009, ‘The impact of uncertainty shocks’, Econometrica Broadbent, B., 2013, ‘Forecast errors’, Speech given at The Mile End Group of Queen Mary, University of London Broadbent, B., 2014, “Monetary policy, asset prices and distribution”, speech given at the Society of Business Economists Annual Conference, http://www.bankofengland.co.uk/publications/Documents/speeches/2014/speech770.pdf Dixit, A. and R.S. Pindyck, 1994, “Investment Under Uncertainty”, Princeton University Press Haddow, A., C. Hare, J. Hooley and T. Shakir, 2013, ‘Macroeconomic uncertainty: what is it, how can we measure it and why does it matter?’, Bank of England Quarterly Bulletin.