BIS Review 103/2009  1  Figure 1: Annual CPI Inflation and Target Path 14 12 10 8 6 4 2  Annual CPI Inflation Yıllık Enflasyon  Outer Band Aralığı Belirsizlik  II*Index*  Target Path Hedefle Uyumlu Patika  1109  0909  0709  0509  0309  0109  1108  0908  0708  0508  0308  0108  1107  0907  0707  0507  0307  0107  0  * Temporary tax adjustments corrected I Index. Source: TURKSTAT, CBT. In addition to the sharp contraction in aggregate demand; the fall in commodity prices and temporary tax cuts within the scope of fiscal measures were also instrumental in the sharperthan-expected drop in inflation. The fall in commodity prices specifically led to a more-thananticipated decline in annual processed food and energy inflation. The fall in annual inflation has reached approximately 19 percentage points for processed food prices and 25 percentage points for energy prices since October 2008, when the effects of the turmoil started to prevail (Figure 2 and 3). Figure 2: Food Prices  Figure 3: Energy and Processed Food Prices  (Annual Percentage Change)  (Annual Percentage Change) 35  27  Processed Food  24  22.35  Unprocessed Food  21  Energy  30  Processed Food  25  18 15  20  12 9  15  6  10  3 5  0 -3  Source: TURKSTAT, CBT.
Distinguished members of the Press and Esteemed Guests, Against this background, assuming that there is further easing in policy rates in the near term followed by no change until the end of 2010, medium-term forecasts suggest that, with 70 percent probability, inflation will be between 4.9 and 6.9 percent with a mid-point of 5.9 percent at the end of 2009, and between 3.7 and 6.9 percent with a mid-point of 5.3 percent at the end of 2010. Furthermore, inflation is expected to come down to 4.9 percent by the end of 2011 and to 4.8 percent by mid-2012 (Figure 26). Figure 26: Inflation and Output Gap Forecasts* (Percent)  Forecast Aralığı* Range * Tahmin  OutputAçığı Gap Çıktı  Band for 2009 2Uncertainty 009 için Belirsizlik Aralığı  Yıl SonuInflation Enflasyon Hedefleri Targets End-year  13 11  KontrolRange Ufku Control  9 7 Yüzde  5 %  3 1 -1 -3 -5 -7 -9 1  2  3 2009  4  1  2  3  4  2010  1  2 2011  3  4  1  2  2012  * Indicates a 70-percent confidence interval for the forecast. Revised forecasts indicate that even if policy rates are kept at low levels for an extended period, aggregate demand conditions will continue to underpin the disinflation process over the next two years. Forecasts also indicate that significant base effects may lead to some inflation volatility in the short term.