They relate, in particular, to the outlook for economic activity and the evolution of commodity prices. Furthermore, increases in indirect taxation and administered prices may be stronger than currently expected owing to the need for fiscal consolidation in the coming years.
Inflation would, therefore, return to the target shortly after the excess supply disappeared from the economy. An upward shift in demand would, of course, generate symmetric responses. While the theory is clear about the appropriate response to demand shocks, the magnitude and persistence of shocks—and hence the size and timing of interest rate adjustments—are always difficult to judge.