Although annual inflation may rise during the second quarter of 2011 amid very low base effects from food inflation, inflation is expected to fall gradually in subsequent periods to stabilize at around 5 percent by early 2012. I think analyzing the forecasts by comparing the latest data with the previous Report period would help to better understand the changes in forecasts. As I have mentioned earlier, we revised our output gap estimates slightly downwards compared to the April Inflation Report, owing to the anticipated impacts of the problems in the euro area on aggregate demand (Figure 34). However, there is no significant revision in the pace of the recovery, as the downward revision in the monetary policy stance is expected to partially compensate for the adverse impact of weaker external demand. In this respect, we based our assumptions on an outlook, in which there would not be a remarkable change in the pace of the recovery in economic activity. Accordingly, there has been no significant revision in the inflation forecasts for 2011 and onwards (Figure 34). BIS Review 133/2010  15  Any new data or information regarding the inflation outlook may lead to a change in the monetary policy stance. Therefore, I would like to underline once more that the assumptions regarding the future policy rates underlying the inflation forecast should not be perceived as a commitment on behalf of the CBT. 4.
Risks  In the last part of my speech, I would like to provide some information on the risks regarding the inflation outlook in the upcoming period and the prospective monetary policy strategies to be implemented should these risks materialize. By influencing commodity prices and external demand conditions, global economic activity would continue to be the main factor driving inflation dynamics and the monetary policy outlook. In this respect, the timing and the extent of monetary tightening to be implemented during 2011 under the baseline scenario may change depending on the course of economic activity. Recently, rising concerns regarding debt sustainability in several euro area countries and the spillover effects to the financial system have led to renewed turmoil across financial markets, underscoring the downside risks to global economic recovery. Furthermore, ongoing problems in credit, real estate and labor markets in advanced economies, with little policy options left in case of further disruption in global economic activity, suggest that downside risks regarding the pace of global growth are likely to persist for some time. Should the global economy face a longer-than-anticipated period of anemic growth, which would consequently delay domestic recovery significantly, the monetary tightening envisaged in 2011 under the baseline scenario may be postponed towards the end of 2011. Moreover, an outcome whereby global economic problems intensify and contribute to a contraction of domestic economic activity may trigger a new easing cycle. By contrast, monetary tightening may be implemented in an earlier period during 2011, should the recovery in economic activity materialize faster than expected.