Prices of Services (Quarterly Percentage Change) 7.87  8  2005 Q1  7 6  2006 Q1  5.19  5  4.264.08  3.85  4  3.02  3  2.41 1.751.80  2  1.27  1 0 Services  Rent  Transportation Services  Restaurant and Hotels  Other Services  Source: TURKSTAT, CBRT. Analyzing the course of prices in durable consumption goods, excluding gold prices, that have continued their high-rated upward trend within the framework of developments in international markets, the annual rate of increase of the said prices entered a downward trend as of August and this trend continued to accelerate in the first quarter of 2006. A reverse in the tendencies of both furniture prices, which may be an indicator of consumption demand and prices in the electrical and nonelectrical devices group, including technology-intensive goods open to competitiveness in general and susceptible to the exchange rate developments as well, are major determinants of this trend (Graph 5). Graph 5. Prices of Durable Goods (Excluding Gold) (Annual Percentage Change)  20 15 10 5 0 -5 Durable Goods (Excl. Gold)  -10  Furniture  -15  Electrical and Non-electrical Equipments  Mar-06  Jan-06  Nov-05  Sep-05  Jul-05  May-05  Mar-05  Jan-05  Nov-04  Sep-04  Jul-04  May-04  Mar-04  Jan-04  -20  Source: TURKSTAT, CBRT.
Under the said assumption, output gap becomes clearly negative as of the third quarter of 2006 and the contribution of demand conditions to falling inflation increases. According to the projections produced under such conditions, inflation drops rapidly compared to the previous scenario and is realized between a 1.9 4.5 percent by the third quarter of 2007. Thus, the possibility of inflation falling evidently under the path consistent with the target increases (Graph 26). Risk elements Distinguished Participants, It should be emphasized once more that the forecasts that I have presented were produced under a main scenario, which was developed on the basis of the above-mentioned assumptions and shortterm outlook in the light of current data. In the event of a possible threat to the medium-term inflation outlook by risk elements, the Central Bank will review both its forecasts and the stance of monetary policy towards the future. Distinguished Guests, In the final part of my speech, I would like to touch on the risks in question. Uncertainties about the course of oil prices are the leading risk element with respect to the achievement of the inflation target in the coming period. In the forecasts produced in the previous Inflation Report, oil prices were assumed unchanged. However, these prices persisted to rise throughout this period and reached high levels in recent times. The unfavorable impact of oil prices on  BIS Review 67/2006  19  annual inflation became one of the factors that slowed down the decline in inflation expectations in the first quarter of 2006.