With the reversal of these effects since the second half of 2008, the downward trend in annual inflation of this group gained pace in this quarter (Figure 3). Meanwhile, the downward trend in the annual rate of increase in food prices is expected to continue in the second quarter as well. Figure 3: Food Prices (Annual Percentage Change) 27 Processed Food  24 21  Unprocessed Food  18 15 12 9 6 3 0 -3  03 08  04 08  05 08  06 08  07 08  08 08  09 08  10 08  11 08  12 08  01 09  02 09  03 09  Source: TURKSTAT, CBT. Esteemed Guests, I would like to further clarify the developments related to services prices as I deem it helpful to focus on them to better understand the significant downturn in the underlying trend of inflation. Services inflation, which had remained relatively elevated in the first three quarters of 2008 due to the second round effects of energy and food prices, has eased considerably since the last quarter of 2008 following the sharp contraction in aggregate demand. The cumulative rate of change in services prices during first three months of 2009 was merely 0.53 percent on lower costs and weaker domestic demand, which is the lowest percentage recorded in the 2003 based CPI index’s history. The slowdown in the growth rate of services prices has spread across all services subgroups (Figure 4).
BIS Review 67/2009  1  Figure 1: Contribution to Annual CPI Inflation  14 12  Food and Energy*  Tobacco and Gold**  Services  Basic Goods  10 8 6 4 2 0  03 07  05 07  07 07  09 07  11 07  01 08  03 08  05 08  07 08  09 08  11 08  01 09  03 09  * Food and Energy: Food, non-alcoholic beverages and energy ** Tobacco and Gold: Alcoholic beverages, tobacco products and gold. Source: TURKSTAT, CBT. In the first quarter, the increase in food prices lost pace over previous years in response to the significant slowdown in the processed food group and energy prices dropped owing to the lagged effects of the recent decline in oil prices. Goods prices excluding food and energy slumped by a lower margin over the first quarter of the previous year. The slowdown in services prices became more pronounced (Figure 2). Figure 2: CPI Sub-Groups (First Quarter Percentage Change) 10  2007  2008  2009  8 6 4 2 0 -2 -4 Food  Energy  Goods excluding Food and Energy  Services  Source: TURKSTAT, CBT. 2  BIS Review 67/2009  The unprocessed food group posted monthly price hikes of significant levels in the last quarter of 2007 and the first half of 2008 on account of production losses and cyclical developments all over the world. Annual inflation in this group surged to 25 percent.