of manufactured products, by contrast, has increased only moderately and indeed it has declined slightly since 2001. these developments suggest that the downward pressure on the overall consumer price inflation also reflects, to a considerable extent, the containment of domestic wage increases in industrial countries as a result of the strengthening of global competition. so far the manufacturing - price and the wage - containing effects on inflation of globalisation seem to have partly counterbalanced inflationary pressures arising from the substantial increases in commodity prices, partly induced by globalisation. a pertinent policy question is : for how long and by how much will global competition continue to contain inflation in industrial countries? the answer to this question is not straightforward. to begin with, the overall impact of globalisation on inflation cannot be accurately estimated although several estimates have been produced of some of its partial effects. for example, imf staff have estimated that globalisation, through its direct effects on non - oil import prices, has reduced inflation by a quarter of a percentage point per year on average in the advanced economies. but the total impact is more difficult to estimate and disentangle from the favourable influences on the recent inflation performance exerted by the significant increases in productivity growth and the enhanced credibility of monetary policy. but if it is difficult to assess quantitatively the 2 / 6 overall impact of globalisation on inflation, it is more difficult to predict to what extent globalisation will apply downward pressure in the future and for how long. while acknowledging that globalisation has helped to contain inflation in many sectors and in advanced economies, and will probably continue to so, we cannot rely on it to keep inflation under control independently of global cyclical positions and monetary conditions. before addressing these issues, it is interesting to point to an attempt made to identify a relationship between inflation and an index measuring the extent to which a country ’ s economy is globalised. chart 7 shows a simple scatter diagram of the ranking of the 62 “ most globalised ” countries according to the annual survey conducted by at kearney together with the foreign policy magazine, against those countries ’ inflation rate in 2005, which is the last year of the survey. this chart suggests that, indeed, the countries ranking highest among the most globalised ones tend to have lower inflation rates, while the “ least globalised ” ones have higher and more diverse rates of consumer price inflation. needless to say, the estimated relationship between inflation and a country ’ s globalisation ranking is only indicative of the influence of globalisation on price

availability of financial capital at low interest rates across the largest international financial markets has also contributed to the significant rise in the prices of various assets. in particular, house prices in many industrial countries, including several euro area countries, have risen at unusually fast rates in recent years, supporting economic activity through various channels. it is interesting to note that, over this period, house price increases were highly correlated across countries, a rather surprising result considering that housing is not a traded asset. this result reflects, to a considerable extent, the very favourable financing conditions that have prevailed in most industrial countries over the past few years, as the relatively low level of consumer price inflation allowed the maintenance of accommodative monetary policies. therefore, abundant liquidity and low interest rates contributed to asset price increases, but their effects on consumer prices were contained. more analysis and better understanding of the links between money and credit growth, on the one hand, and asset price increases and consumer price inflation, on the other, are clearly warranted in a globalised economy marked by increased competition and productivity growth. 3 / 6 globalisation and external imbalances the two forces i mentioned earlier – rapid growth in large emerging market economies that have become integrated in the world economy combined with the substantial increase in energy and commodity prices – have resulted in large excess savings, especially in east asia and in oil - exporting countries. these excess savings ( that is, savings greater than the investment opportunities at home have been channelled to industrial countries, notably the united states, financing its increasing current account deficit, which in 2005 reached a historic record, exceeding usd 800 billion, or around 6. 4 % of gdp. in the us, the main factors driving the widening of its current account deficit in 2005 were household borrowing and fiscal deficits, while the corporate sector remained a net saver. is the whole world contributing to these imbalances? and are we all affected? ( see chart 9 ). not all economic areas are running large net current account positions : the us deficit is mirrored, and is made possible, by growing surpluses in east asia and in oil - exporting countries. in the euro area the current account has remained close to balance. though not all economic areas contribute equally to the external imbalances, all are affected nonetheless. the extent to which we are all affected depends on the sustainability of this constellation of international savings and investment. despite some dissenting voices, the broad consensus view is that this constellation is not sustainable