Turning to the price developments, annual HICP inflation was 1.8% in February 2007, unchanged from January 2007. The lower annual HICP inflation rates since the summer of 2006 have been predominantly due to lower energy prices. Looking ahead, last year’s volatility in energy prices will lead to significant base effects, affecting the profile of annual inflation rates this year.
8 These ingredients – the large presence of the GSEs in financial markets, the lack of market discipline exercised by investors in GSE senior debt, and the incentives for continued portfolio growth – led the Federal Reserve Board to conclude that while the GSEs do not seem to pose an immediate risk of financial difficulty, their portfolios continue to represent a potentially significant source of systemic risk.