constantinos herodotou : introduction - 13th limassol economic forum introduction of mr constantinos herodotou, governor of the central bank of cyprus, at the 13th limassol economic forum, limassol, 21 october 2022. * * * i would like to start with thanking yiannis and mario for accepting my invitation to participate in this panel discussion with me. a€ “ mario, obrigado por aceitar o meu convite. it is a pleasure to discuss the inflation challenges during these difficult times of high inflation and elevated economic uncertainty with my governing council colleagues and friends mario and yiannis. the war in ukraine has disrupted the return to normality that we expected after the end of the pandemic lockdown periods. central banks around the world are facing the challenge to put under control excessive and persistent inflationary dynamics. so it is informative to look at the main components of these inflation dynamics, in other words which items drive inflation up the most. the war exacerbated massively cost push inflation, primarily through the energy price shock. in measuring energy inflation we include among others the prices of fuel, gas as well as electricity prices. this inflationary dynamic continues to persist with energy price pressures, in the most recent measure last month, being extraordinarily high at 40. 7 % compared to 38. 6 % in august. the second major contributor to inflation is food prices which grew by 11. 8 % in september compared with 10. 6 % in august. this is attributed to higher input costs related to the energy price increases, disruptions to trade in food commodities and adverse weather conditions. inflation in services is also increasing but here it is interesting to point out that whereas supply side factors were the main driver of services inflation until the end of 2021, demand factors have been making an increasing contribution to services inflation throughout 2022, and ended up surpassing supply driven factors in the third quarter. a similar increasing contribution of demand drivers versus supply drivers is observed in non - energy industrial goods inflation in 2022. so, headline hicp inflation is projected to rise further from the already very high levels, averaging to 8. 1 % in 2022, then decreasing to 5. 5 % next year and to 2. 3 % in 2024. but these are annual averages of inflation. this is also important because in order to reach the 5. 5 % average inflation next year, since inflation starts in the coming year at a high

’ s banking supervision particularly, must remain vigilant in supervising the banking system generally and the mortgage - lending industry specifically. the structure of israel ’ s mortgage - lending market is different today than it had once been, and it is important to understand the risks that exist today, address them, and avoid complacency arising from the thought that this market was once considered especially stable. the bank of israel is duty - bound by law to maintain financial stability in the economy at large. in this context, the concept of macroprudential supervision – supervision of stability at the macro level – has been mentioned recently. this concept means that even if the situation in any particular market or financial institution may look good, systemic problems that endanger overall stability may exist. in the u. s., for example, people thought that the subprime market was relatively small and that lehman brothers ’ balance sheet was not especially big. both of them, however – the subprime market and lehman brothers – ultimately dealt the system a very grave blow when they collapsed. the bank of israel has already taken macroprudential steps in regard to the real - estate market and the government has taken measures that should increase housing supply. at the moment, there are indications – no more than indications – that the housing market is leveling off. current data from various sources are painting contrasting tableaux ; we need to wait for the situation to become clear. if we find that real - estate prices are continuing to rise rapidly, we will have to take additional measures. we are also concerned about the growing use of nonbank credit to finance property investments in eastern europe. complacency, as stated, is highly dangerous in this context. even if no financial institution has collapsed in the current crisis in israel, we should remember that it was a damn close run thin. we were forced, for example, to unfurl a safety net for the pension funds during the crisis, some domestic corporate bonds had to the reorganized, and so on. one cannot rely on the regulators only. the key to a safe banking system is risk management at every bank and every financial institution individually. we need to remember that bad loans are issued in good times. an important part of learning the lessons from the crisis takes place at the international institutions. the center of gravity in the global economy is shifting from west to east and this finds expression at the international agencies as well. these entities engaged, for example, in developing systematic bankruptcy