to start from behind. that was still the broad picture at the start of 1997. but now, in a matter of a few months, real questions are being asked whether this - like so many other miracles - turns out to be some sleight of hand, or not sustainable over time. one of the original sceptics of the miracle - paul krugman - might seem vindicated in his likening of these countries to the early years of the soviet union, where fast growth was achieved artificially and in a way that could not be sustained in the longer run. 25 even among the countries themselves, the basis of the miracle - free markets and increasing exposure to the outside world - is now under serious question. in the face of these doubts and the current crisis, should we abandon this new paradigm and return to some version of the old, low - growth, view of these countries? the most powerful reason for not doing this is that the forces which drove growth in the past are still there - the poorer of these countries are still well back from the technological frontier and the application of capital to still - cheap labour, and improvements in organisation and governance mean that fast growth is still achievable. the fact that they are still relatively poor makes this eminently desirable. first priority is to get them back on the rails again. second priority, when the immediate crisis is over, is to get along with those structural and governance issues that we have heard so much about of late. if they are as economically important as the current debate implies, the growth potential of these countries should be higher still. the countries which can put in place robust, resilient and responsive financial sectors most quickly will be the ones which can return to rapid growth first. as stiglitz has said : “ in 1975, six out of 10 asians lived on less than $ 1 a day. in indonesia the absolute poverty rate was even higher. today, two out of 10 east asians are living in absolute poverty. korea, malaysia, and thailand have eliminated absolute poverty and indonesia is within striking distance of that goal. … no other economic system has delivered so much, to so many, in so short a span of time. ” ( stiglitz 1998 ). although he was most sceptical about singapore, which seems to be one of the least affected. - 13 - references feldstein, m. s. ( 1998 ), ‘ trying to do too much ’, financial times,

percent of the expenditures in the cpi basket. 2 food at home, energy and housing represent 49 percent of the cpi basket, whereas all food, energy and housing are 54 percent of the market basket. - 5a second measure that is frequently watched is the one i mentioned earlier, the personal consumption expenditures ( pce ) price index, which places less weight on food, energy and shelter — they make up about 30 percent of the expenditures in the pce basket. the fomc chose the pce index over the cpi for its inflation target in part because it includes a broader set of goods and services in its market basket and is widely believed to better capture changes in the mix of goods and services purchased by consumers. monetary policy works with a lag, and after the federal reserve started raising interest rates last march, inflation peaked in the middle of 2022 and has been falling gradually since then. twelve - month pce inflation hit a high of 7 percent in june but ended the year at 5 percent. by comparison, over the final three months of 2022, headline inflation was much lower, running at an annualized rate of just 2. 1 percent. the difference between the three - month and 12 - months changes is a signal of ongoing moderation. as has been the case since the summer, falling energy prices are a big reason for lower inflation in the last few months, though food price inflation also moderated in the final few months of 2022. these improvements are welcome news, but we need to keep them in perspective. as we can see in the figure, though pce inflation is down from its peak, it is still quite elevated. and while the recent trend is encouraging, the improvements over the past year have been coming in ebbs and flows and it likely will continue this way. i need to be confident that inflation is declining in a sustained manner towards our 2 percent target, so i will need to see continued moderation in inflation before my outlook changes. - 6so where do i think inflation is heading? you will often hear economists talk about core inflation, which strips out energy and food prices, which tend to be volatile. the core measure is considered a better guide to the direction of future inflation. you might wonder why it is that the fed doesn ’ t just target core inflation in measuring progress toward our price stability goal. there are some good reasons for keeping the focus on overall inflation, and in front of an audience of people who pay a lot of attention