The main purpose of the target revision is to create an achievable disinflation path that can be taken as reference by economic agents and that would take us to our price stability objective in the medium term, which is inflation rate of 4 percent. As you may know, Turkey has not witnessed low single-digit inflation figures for nearly half a century. This has adversely affected the expectations for attaining the 4 percent inflation target. Furthermore, overshooting the inflation targets in 2006 and 2007, and recent supply shocks have elevated expectations even further. Hence, the new targets announced on June 3, 2008 aim to create a new anchor for economic agents, that is attainable. At this point, I would like to emphasize that the nature of these new targets differ remarkably from those set for the 2006-2008 period. The Central Bank will treat the revised targets asymmetrically. In this framework, in the upcoming period, the Central Bank will prefer an inflation that stays below targets. Accordingly, better than expected outcomes in food and energy prices or in other global factors will be perceived as an opportunity to bring down inflation faster than that is implied by the revised target path. Should the upside risks materialize; monetary policy will be conducted so as to minimize any upside deviation of inflation from the revised targets. Target revision is the solution that is provided by our Bank to the “problem of demarcation”, which is faced by almost all central banks today.
Some advanced economies are on the brink of recession. Dear Guests, This is not the first time the world had experienced supply shocks in commodities. But, these shocks were usually in energy prices and consequently, they had affected advanced economies more severely than the developing ones. The rise in food prices, on the other hand, has led to different repercussions. In comparison to the industrialized world, food expenditures in developing countries constitute a larger share in the basket of consumer prices. That is why increases in food prices typically lead to higher increases in the inflation rates of developing countries. Food prices have been rising dramatically, particularly since mid-2007. At one point, the inflation of wheat prices reached triple digits. Similar levels were observed in corn, soybean, and rice prices. According to estimates of the International Monetary Fund, food inflation accounted for 44 percent of global inflation in 2007 – up from 27 percent in 2006. In Asian countries, this figure reaches to 68 percent. Food inflation is expected to contribute almost two thirds of increase in inflation rates in Brazil, Chile and Argentina. Despite some relief in the most recent period, they are expected to stay elevated in the near future. There are both supply and demand pressures behind this dramatic surge in food prices. On the supply side the amount of resources allocated for agricultural production has been stagnant for a while due to rapid urbanization and industrialization.