##s. in fact, as also illustrated on the slide, inflation excluding unprocessed food and tobacco remained in line with the outlook presented in the october inflation report ( figure 3 ). bis central bankers ’ speeches food prices became the main determinant of the course of consumer prices in the last quarter of 2010 as well. food prices that posted record highs in the third quarter due to the hikes in unprocessed food prices, declined in the last quarter as opposed to the previous years ( figure 4 ). moreover, the favorable developments in inflation in this quarter did not remain limited to food prices ; quarterly inflation across all goods and services items stayed below the average of previous years ( figure 5 ). meanwhile, energy prices, which followed a horizontal course in the second and third quarters of the year, increased in the last quarter parallel to the developments in international oil prices and exchange rates. the core inflation indicators decelerated in the fourth quarter of 2010 compared to the third quarter ( figure 6 ). although hikes were seen in these indicators, which edged up again in bis central bankers ’ speeches november and december, the main trend of inflation remained in line with medium - term targets ( figure 7 ). against this background, medium - term inflation expectations declined significantly ( figure 8 ). while near - term inflation expectations declined in a higher ratio compared to the previous quarter, the longer the maturities, the less was the decline in expectations. 12 and 24 - month ahead inflation expectations remained above the figures implied by the targets for 2011 and 2012 year - ends, however, the difference went down slightly in the last quarter ( figure 9 ). bis central bankers ’ speeches 2. monetary policy response after commenting briefly on inflation developments, i would now like to cover the policies pursued by the central bank during the last quarter. the second round of quantitative easing initiated in the last quarter of 2010 by some advanced economies and the attendant ramp up of capital inflows to emerging markets has required significant modifications to the cbrt ’ s strategy. macroprudential measures were needed because short - term capital inflows have strengthened the divergence between domestic and foreign demand causing the current account deficit to widen rapidly. since core inflation trends were in line with medium - term inflation targets, the monetary policy was able to focus on financial stability. the new monetary policy strategy envisions the use of multiple instruments to manage both internal and external balances. in this context, policy rates, liquidity management facilities

stefan gerlach : banking and fiscal union introductory remarks by mr stefan gerlach, deputy governor of the central bank of ireland, at a panel session at the eui conference on “ the state of play in the euro area – fixing the emu for the long term ”, florence, 21 january 2013. * * * i am grateful to rebecca stuart for her help in preparing these remarks. while plenty of work has been undertaken since last summer on establishing a european banking union, progress has been uneven and it has stalled in some areas. of course, it is difficult to build consensus in a situation where bank resolutions may become necessary, and deposit insurance schemes could be called on, in the near future. this is a matter that ideally should have been discussed and settled when emu was formed, much in the same way as a car must be insured before it can be driven. unfortunately, that route was not taken. much of the interest in banking union arises because it is a necessary, but not sufficient, condition for the esm to recapitalise banks. indeed, the establishment of the single supervisory mechanism ( ssm ) with the ecb is frequently seen as having been adopted precisely because this is the fastest road, legally and institutionally, to banking union. it is of course essential and urgent to enable the esm to support banking systems in order to overcome some of the tensions in the euro area, and there is intense public debate about how best to structure the ssm. in my introductory remarks today, however, i would like to take a step back from that debate and instead reflect more broadly on why a banking union is important for any monetary union to function well and why it is natural to locate the ssm with, or at least “ close to ”, the central bank in such a union. banking supervision why might it be beneficial to have a ssm in a monetary union? to my mind, one important reason is that a greater remove between supervisors and the banks they regulate can help improve the capacity for challenge and ensure a broader, more detached, perspective on the issues. in particular, it would ensure the independence of the supervisory and regulatory decision - making process from national political pressure, and avoid regulatory capture. for example, a distant supervisor may take action to address risks arising from a bubble in good times that a national supervisor would come under pressure to overlook. it also seems unlikely that a banking supervisor from, say, italy or ireland, sitting in frankfurt,