BIS Review 159/2010  3  In the third quarter, while energy prices followed a horizontal course due to the developments in oil prices, the inflation trend in core goods excluding food, energy, alcoholic beverages, tobacco and gold maintained its low level. Meanwhile, the decline in annual services inflation became more marked than expected. Services prices excluding food and transportation, the sensitivity of which is relatively higher against demand, recorded its lowest level (Figure 10). The steady downward tendency in core inflation indicators continued in the third quarter due to this beyond expected slowdown in services prices (Figure 11). The reverberations of the strong course of the Turkish lira on core goods prices were also influential in this development. In this respect, the underlying inflation implied by the core indicators continued to slow down and followed a course consistent with the medium term targets. Accordingly, the gap between Turkish core inflation indicators and those of other developing economies continued to narrow in the third quarter (Figure 12). Medium-term inflation expectations, which displayed a downward trend from the second quarter in the framework of these developments, registered a limited decline in the third quarter (Figure 13). Core inflation indicators that steadily went down despite the rise in consumer inflation prevented deterioration of the medium-term expectations in this period. While recent inflation expectations showed a limited quarter-on-quarter decline, it appears  4  BIS Review 159/2010  that despite longer maturities, expectations are not differed from their previous quarter level so far (Figure 14).

While important progress is being made, this has recently been overshadowed by financial turmoil in the region, and the focus of attention has as a consequence been diverted to the provision of credit to assist Asian economies in need in making structural adjustments. We had the financial package for Thailand, and there have since been many ideas put forward for a general facility of some sort. These are being actively considered and we are taking an active part in the discussion, although there are currently still quite significant differences of opinion. The position that we are taking is that whilst regional solidarity is highly appropriate for a region with increasing economic, trade and financial integration and increasing interdependence, any regional financial arrangement must be structured with regard to international standards and practices. It would not be appropriate, for example, for a regional institution, if there is to be one, to prescribe medicine, along with financial assistance, that is different from those prescribed by the International Monetary Fund. It would immediately be seen as a soft window for financial support, thus creating moral hazard problems. I am hopeful that well-structured arrangements will emerge in due course. Certainly the climate is right and the momentum is there. 14. Perhaps I should take this opportunity to put the recent financial turmoil in Asia in a global perspective. First, the world is in very good economic shape. World economic output is estimated by the IMF to expand by 4-4½% in 1997 and 1998, the strongest pace in a decade.