? according to our latest forecasts, we are expecting the strong inflation to return to normal in the medium term. uncertainty, however, is exceedingly high. many already see us facing a repeat of the stagflation of the 1970s. the word stagflation is a portmanteau of stagnation and inflation, coined to reflect a contemporary combination of high inflation rates and stagnating economic output. are we once again facing years of high inflation and weak growth? there are indeed some parallels between stagflation at that time and the situation today. during the 1970s, the two oil crises in 1973 and 1979 - 80 sent inflation soaring. in the present day, the pandemic - related supply constraints and the russian attack on ukraine are having a similar impact on prices. current oil price increases are significantly lower than they were back then. this time around, though, oil is not the only factor, as gas in particular is playing a critical role as well. the price of gas in the german market was almost five times as high in july as it was a year ago. by comparison, brent crude oil was “ only ” 70 % more expensive in euro. and the worst may be yet to come. a persistent limitation in gas supplies would, amongst other things, prolong the period of high inflation rates and increase the risk of second - round price increases becoming entrenched. the stagflation of the 1970s and developments today also share similarities in the expansionary orientation of fiscal policy. to wit, many countries have cushioned the pandemic - related economic slump by rolling out large - scale fiscal support measures. in the 1970s, the fiscal policy response in industrial countries to the first oil crisis was also accommodative, with the aim of shoring up purchasing power. [ 2 ] germany saw strong wage growth, especially in the public sector. in addition, the fiscal situation in the united states was already strained in the run - up to the oil crisis owing to the high level of spending on the vietnam war. that said, there is some evidence that today ’ s crises will have a different impact on economic activity, perhaps even a lesser one. thus, the degree of fiscal policy accommodation is still high, but it is declining overall. this is because the pandemic has largely been overcome and coronavirus response measures are being phased out. moreover, there are structural differences between the labour markets in the 1970s and today. the index

adjust according to market forces and may therefore serve as a shock absorber in the case of capital outflows. a number of asian emes, hong kong included, have also stepped up their macro - prudential measures in recent years to tackle the spill - over effects of the unconventional monetary policies of the advanced economies. 8. there is, however, no room for complacency. we should also be aware that the external environment has become much more challenging for asian emes compared with the 1990s. the global economy is now much weaker, meaning that emes may be less able to look to support from external demand to cushion the effect of tighter domestic liquidity conditions along with us monetary policy normalisation. concerns over further economic moderation in mainland china have also weakened market sentiment towards asian emes and the strength of the region ’ s “ pull factor ” to attract global capital flows. 9. more importantly, the region is now facing new risk factors that were unseen before. first, while the asian region is once again awash with excess liquidity, this time the magnitude of capital inflows is unprecedentedly large, with an estimated cumulative shortterm non - resident inflow of us $ 1. 6 trillion between 2009 and 2014, according to the balance of payments statistics. up to the second quarter of this year, only around us $ 160 billion, or 10 % of the total inflows, have exited the region. this would suggest the size of potential capital outflows and the resulting unwinding of financial imbalances could be significant and disruptive. second, the region ’ s financial markets are now more globalised and interconnected than back in the 1990s. the impact from capital outflows could therefore be transmitted more quickly and widely across financial markets, as depicted by the sharp equity market sell - offs and currency depreciation across emes in august this year. meanwhile, the increasing presence of foreign investors in asia ’ s debt markets and declining bond market liquidity in the region in recent years may also amplify the impact of capital outflows in case of distress. 10. with global monetary policy paths set to diverge, significant uncertainties and challenges lie ahead for advanced economies and emes alike. to what extent will they be susceptible to us monetary policy shocks? how should policymakers better prepare themselves to minimise possible disruptions to their economies and financial markets? i hope that this conference will contribute useful insights and advice on these