Neither a purely monetary approach nor a purely non-monetary approach to the analysis of risks to price stability is able to deliver the best possible results for monetary policy. In the beginning, we were sometimes criticised for "not having decided" between a strategy clearly based on a purely monetary objective and one based on pure inflation targeting. However, I strongly believe that we have made the right decision, as we have only one primary objective: price stability. We have also decided in favour of a robust strategy in order to achieve our objective. This enables us to use a variety of approaches, involving different analytical frameworks and indicators, which are relevant for our primary objective of price stability in our decision-making process, and to cross-check the results. This approach provides the best possible basis for monetary policy decisions. So far, both pillars have given broadly similar indications with regard to the primary objective of price stability. However, this does not necessarily have to be the case. Let us suppose that both pillars were to point in different directions. Would it really be better if only one of these signals were available? This would undoubtedly make the decision process easier. But, seriously, faced with uncertainty - and that is an essential characteristic of the world we live in - I do believe that it is advantageous to take more than one approach into consideration and not to rely on a single analytical framework. That is basically the rationale for our two-pillar strategy.
One characteristic of the Chilean economy is that changes in costs are regularly passed on to consumer prices. Markets for foodstuff are globally integrated and competitive. In the case of fuels, every week the changes in the international price are passed on to domestic consumers. However, there is a price stabilization fund to smooth out short run fluctuations  BIS Review 39/2008  3  and recently there has been a gasoline tax cut, which ameliorates the large increase in international prices. Finally, the electric power price-setting mechanism is designed to pass changes in upstream marginal costs to retail prices. Electric power rates, affected by a rise in costs, posted an average increase of 23% during 2007 compared with a less than 6% average increase between 2000 and 2006. This context of price flexibility provides the right signals to markets. In the case of Chile, with the increase in the prices of electricity and minerals, several investment projects are in the pipeline, which will propel an expansion of supply. Electricity $ MM; index Dec-98=100) 1200  240  1000  200  800  160  600  120  400  80  200  40  0  0 96  98  00  02  04  06  III  07  Energy investment (2)  III  08 (1)  CPI Electricity  (1) Figures as of February. (2) Includes investment in buildings, engineering, equipments and others.