In this context, I would like to start my speech by once more underlining that inflation developments in Turkey in the first quarter of 2009 should be considered in the light of these global conditions. In the first quarter of 2009, consumer prices increased by 1.05 percent and annual consumer inflation became 7.89, remaining within the limits of the uncertainty band. Backed by the significant slowdown in economic activity and improvement in cost-based effects, the decline in inflation gained ground and spread across all subgroups. In addition, the short-term exchange rate pass-through on consumer prices remained limited in the previous quarter. The contribution of all main groups excluding tobacco and gold, which posted high-rated price hikes to annual inflation weakened in the first quarter of the year. While the contribution of food and energy to annual inflation decreased especially due to the marked decline of annual inflation in energy prices, the contribution of services prices also continued to diminish owing to the fall in costs and the slowdown in domestic demand (Figure 1).
The contraction in economic activity in the last quarter of 2008, which was mainly driven by the contraction in the export-oriented industrial sector, accelerated the deterioration in nonagricultural employment and unemployment climbed to a record high with the additional effect of the significant rise in the labor force participation rate (Graph 24 and 25). The most recent data indicate that the rise in the unemployment rate continued with further acceleration in the first quarter of 2009. Within this framework, it is estimated that the current conditions will continue to curb the upward trend in unit labor costs and the rise in domestic demand. BIS Review 67/2009  15  Graph 24: Non-Agricultural Employment  Graph 25: Non-Agricultural Unemployment  (Seasonally Adjusted, Million People)  (Seasonally Adjusted, Percent)  16.5  16  16.0  15  15.5 14 15.0 13  14.5 14.0  12 1  2  3  2005  4  1  2  3  4  1  2006  2  3  2007  4  1  2  3  2008  Source: TURSTAT, CBT. 4  1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 2004  2005  2006  2007  2008  Source: TURKSTAT, CBT. The rapid policy rate cuts coupled with the fiscal stimulus plan designed to revive domestic economic activity are expected to underpin domestic demand as of the second quarter of 2009.