Moreover, the outlook regarding the course of the factors that pose risk to achieving the inflation target, which are outside the area of impact of monetary policy is summarized in the introduction section and the likely policy reaction against such risks is discussed. These risk factors are listed as the course of oil prices, housing price increases, the acceleration in price increases of those items, which are determinant in the inflation of the goods group, such as fresh fruits, oil, basic metals and gold, global risk appetite and international liquidity conditions. Detailed analyses of developments in inflation, supply-demand, the financial sector and public finance, which have been examined within the framework of the information they contain relating to the medium-term tendency of inflation are presented in the following four chapters. In the last chapter of the Inflation Report, updated assumptions on fundamental macroeconomic variables are compared and contrasted with the assumptions of the previous Inflation Report and inflation and the output gap forecasts produced on the basis of these assumptions are analyzed. BIS Review 67/2006  1  Furthermore, the likely risks that may lead to an apparent upward or downward deviation in inflation forecasts are explicated in detail. In this Inflation Report, a number of boxes have been prepared in order to shed light on certain subjects of interest as in the previous Report.
Therefore the developments in these expectations play an important role in Central Bank analyses and evaluations. In this framework, analyzing the inflation expectations for the next 12 months and 24 months as of April, the following points emerge: Though consumer inflation expectations for the next twelve months have declined, the rate of decline has been slowing down significantly since February and expectations have to some extent been  6  BIS Review 67/2006  following a horizontal course. The fact that long-term consumer expectations relating to the next 12 and 24 months are slightly above the targets is interpreted as a development that requires prudence with respect to the falling inflation process. Nevertheless, the course of longer-term expectations at low levels is an encouraging development as regards the success of inflation targeting (Graph 9). Graph 9. CPI Expectations Regarding Next 12 and 24 Month Periods (Annual Percentage Change)  9 Next 12-Month  8  Next 24-Month  7 6 5 4 Apr-06  Feb-06  Dec-05  Oct-05  Aug-05  Jun-05  Apr-05  Feb-05  Dec-04  3  Source: CBRT. Supply and demand developments Supply-demand balance Distinguished Guests, At this point, I would like to touch on our evaluations relating to supply and demand developments in the light of national income data released at the end of March. In the last quarter of 2005, Gross Domestic Product (GDP) increased by 9.5 percent compared to the same period of the previous year. Hence, GDP growth was realized as 7.4 percent throughout 2005.