"In view of the new highs to which international crude prices have recently been lifted, the threats to domestic price stability have risen and turned extremely volatile, representing a serious risk to inflation expectations. It is difficult to differentiate, ex ante, the permanent and temporary components of the elevated international crude prices but, in any case, at current levels, it is necessary to recognise the need for some more pass-through from international crude prices and implications for domestic inflation conditions.
"Headline inflation has trended up in the US, the euro area, Japan and China in November 2007. The recent sharp rise in commodity prices has added uncertainty to global inflation prospects. Food prices are pushing up inflation in many EMEs and are expected to remain high over the medium-term. Higher oil prices pose the risk of aggravating inflation risks directly as well as through the demand for oil substitutes which, in turn, contributes to the rise in food prices. Wage pressures in the context of strong labour market conditions are posing inflation risks in advanced and emerging economies across the world, in conjunction with higher input costs. Overall, inflationary pressures have firmed up with implications for the outlook for 2008."
