Meanwhile, depreciation of the Turkish lira due to excessive volatility observed in international markets in May and June, led to hikes in the prices of petroleum products, consumer durables and the prices of goods that are set in terms of foreign currencies and prices of imported goods. One of the sub-groups that are most severely affected by this situation is the transportation group. Petroleum products prices, which are registered under the transportation group, increased by 5.9 percent and 3.3 percent in June and July, respectively. Meanwhile, automobile prices registered under the same group increased by 10 percent in April-June 2006. Prices of processed food products, which displayed a limited rise in the  2  BIS Review 89/2006  first six months of the year, displayed a higher rate of increase in July due to the lagged effects of the fluctuations in exchange rates. The contribution of the depreciation of Turkish lira to consumer inflation in the May-June period reached 1.5 percentage points. When we analyze inflation under two groups as goods and services, it is observed that inflation in the services group has decreased throughout 2006 compared to the same period last year, however especially due to the high rates of increase in house rents and restaurant-hotel prices, annual inflation in the services group became 11.7 percent annually as of July and maintained its high level. The 20.5percent rise in house rents is remarkable in this group.
High and chronic inflation culminated in the adoption of short-term approaches, by adversely affecting expectations, investment and production decisions and deteriorating resource allocation in the economy, which brought along low and volatile rates of growth and employment and aggravated injustice in income and wealth distribution. We have experienced all the damage of inflation in Turkey, so we expect all sections of the public to support our fight against inflation and defend the achievements we have made so far. It should be borne in mind that striving for price stability means striving for creating an environment where people can make a living, make investments and can look to the future with confidence. With this respect, price stability is a goal that cannot be sacrificed for any other priority or target. Thanks to the policies implemented by our Bank, great progress was made in the disinflation process: inflation, which was 73.2 percent at the beginning of 2002, was recorded as 10.26 percent in August 2006. Within the framework of the fight against inflation, the Central Bank of Turkey adopted the formal inflation-targeting regime as the monetary policy strategy at the beginning of 2006. Now, I would like to mention a few points that I believe are important with respect to the adoption of the inflation targeting regime. Studies on the inflation targeting regime as a monetary policy strategy were initiated at our Bank in 2000.