It is difficult to give an exact answer to these questions, but recent research conducted by the staff at the Central Bank of Turkey may give us some ideas. Empirical analysis of food prices in Turkey showed that external factors are quite dominant in food inflation. It was estimated that severe drought in Turkey and skyrocketing world food prices were responsible for almost 70 percent of annual inflation in processed food prices in 2007. It was less than 10 percent in 2006. It was also found that aggregate demand conditions, which are mostly within the domain of monetary policy, had a negligible contribution in processed food inflation. These findings show, on balance, that the recent climb in processed food prices was mainly fueled by supply shocks and external factors. Dear Guests, In recent months there are signs of some relief in food inflation. Inflationary pressures triggered by severe drought and related crop losses have been waning for some time around the world, including Turkey. Early forecasts for 2008 suggest that the weather will be more accommodating than 2007. As measured by current indicators, grain production will particularly rebound from its year-ago levels. The rate of increase in food prices is likely to decelerate during the second half of 2008. Yet, despite better prospects on the supply side, food prices are expected to stay elevated in the near future in the medium term as long as the demand pressure from rapidly-growing developing countries continues. Let me give you a few numbers and explain my reasoning.
However, the revision will work only if necessary policy stance is adopted. For this reason, the second pillar of monetary policy comprises the implementation of a monetary tightening that is consistent with the new inflation targets. Newly set targets are references that would help decision makers in the economy understand the reasoning behind the policy stance, i.e. the factors that have led to monetary tightening and the extent of monetary tightening if and when necessary. In other words, the Central Bank has announced, via the target revision, the limits of its tolerance to the first round impacts of supply side shocks. While concluding my speech, I would like to extend my thanks to the Central Bank of Argentina, and all other institutions and individuals who contributed to the organization of this significant event. Thank you. 4  BIS Review 109/2008