We believe that supply-side developments continue to play a dominant role in the inflation outlook, and we find as yet no preponderant evidence of demand-driven inflationary pressures or second-order inflationary effects from the ongoing supply shocks.
The expected path of future inflation continues to be hump-shaped, as supply factors push headline inflation above the 4-5 percent target in 2004 and 2005 before quickly tapering off and reverting to the 4-5 percent range by 2006. We find no compelling reason, therefore, to modify the settings for monetary policy at this time.