Therefore, assuming that supply shocks gradually fade out over time, headline inflation is expected to decelerate. BIS Review 62/2008  7  Figure 10: Output Gap 8 6 4 2 0 -2 -4 -6 -8 2008-I  2007-III  2007-I  2006-III  2006-I  2005-III  2005-I  2004-III  2004-I  2003-III  2003-I  2002-III  2002-I  2001-III  2001-I  2000-I  2000-III  -10  Source: CBT. Distinguished Members of the Press, The domestic currency has depreciated by more than 15 percent in nominal terms since the beginning of the year. Notwithstanding the expected deceleration in the core inflation indicators in the medium term, the first round impacts of the exchange rate pass-through may be significant in the short term (Figure 11). Figure 11: Risk Premium and Nominal Exchange Rates 2  400 YTL/Currency Basket (0.5 Euro+O.5 US Dollar)  1.9  350  EMBI+Turkey (right axis)  04/08  03/08  02/08  01/08  12/07  0 11/07  1.2 10/07  50  09/07  1.3  08/07  100  07/07  1.4  06/07  150  05/07  1.5  04/07  200  03/07  1.6  02/07  250  01/07  1.7  12/06  300  11/06  1.8  Source: CBT, Bloomberg. 8  BIS Review 62/2008  Longer term interest rates have increased lately due to the rising risk premium (Figure 12).
During the same period, the average inflation in emerging market economies with inflation targeting rose from 3.4 percent to 6.1 percent. Figure 6: S&P Goldman Sachs Commodity Price Indices  750  550  Commodity Prices Metal Prices Energy Prices (right axis) Agricultural Prices (right axis)  675  450  600 525  350  450  5  250  375  3/12/2008  11/14/2007  24-07-2007  29-03-2007  01-12-2006  09-08-2006  150 17-04-2006  300  Source: Goldman Sachs. Figure 7: Inflation in Other Countries a. Inflation Rates  b.Diff. Between Turkey and Other Emerg. IT’ers*  9  Developed Economies Developing Economies Turkey  02.08  12.07  10.07  08.07  06.07  04.07  02.07  12.06  10.06  08.06  06.06  01.08  11.07  2  09.07  0 07.07  3  05.07  2 03.07  4  01.07  4  11.06  5  09.06  6  07.06  6  05.06  8  03.06  7  01.06  10  04.06  8  02.06  12  12.05  14  *Sample of emerging economies under inflation targeting covers Brazil, Czech Republic, Colombia, Philippines, South Africa, Israel, Hungary, Mexico, Peru, Poland, Romania, Chile, Slovakia and Thailand. Source: Web sites of central banks, IFS, TURKSTAT, CBT  BIS Review 62/2008  5  2.