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Rather than a single deep correction with a single source, the global economy is facing a multiplicity of inter-dependent shocks in key areas, ECB President Jean-Claude Trichet said. A proper understanding of the nature of these shocks and their inter-relations is a pre-condition to examine the required reaction of economic and, in particular, monetary policies.
"Economic policymakers are currently grappling to understand the root, duration and impact of a number of significant and sizeable shocks affecting the world economy, including rising commodity prices … as well as a period of prolonged financial turbulences," he said in a speech to the International Monetary Conference in Barcelona.
However, the responsibilities of central banks have not changed, he said. “The task is complicated by interaction with the other factors … but monetary policy stays firmly focused on delivering price stability," he said.
Global commodity price developments have been fuelled by population growth and improving living standards, which have put pressure on global food supply capacity, he said. And growth in emerging economies has also pushed up demand for energy, resulting in rising oil prices combined with growing concerns about climate change.
“From a world of seemingly unlimited resources, mankind is gradually accustoming itself to the earth as limited, crowded and finite space - with limited resources for extraction and a narrowing capacity for waste disposal or pollution”, Trichet said.
Price stability is the essential responsibility of the monetary authorities, the ECB Presidents said. “The task is complicated by interaction with the other factors but monetary policy stays firmly focused on delivering price stability, which is important for the efficient working of the market system and the optimal allocation of resources.”