Figure 2: Processed and Unprocessed Food Prices (Annual Percentage Change) Processed Food  25  Unprocessed Food 20 15 10 5  06.08  05.08  04.08  03.08  02.08  01.08  12.07  11.07  10.07  09.07  08.07  07.07  06.07  0  Source: TURKSTAT, CBT. 2  BIS Review 100/2008  Developments in energy prices have been the other major factor driving inflation in the second quarter (Figure 3). Soaring oil prices continued to lead to significant hikes in the prices of domestic fuel products, also putting pressure on housing utilities such as electricity and natural gas. Figure 3: Energy Prices (Quarterly Percentage Change, Percentage Point Contribution) 10  Fuel (Percentage point contribution)  8  Energy for housing (Percentage point contribution) Energy (3-Month percentage change)  6 4 2 0  08-II  08-I  07-IV  07-III  07-II  07-I  06-IV  06-III  06-II  -2  Source: TURKSTAT, CBT. Services inflation displayed a limited rise in the first half of 2008. Food and energy prices continued to exert upward pressures on the prices of catering and transport services. Rents and other services, on the other hand, continued to decelerate (Figure 4). Figure 4: Subcomponents of Services Index (First Half Cumulative Percentage Change) 12  2006-2007 Average  10  2008  8 6 4 2 0 Services  Rent  Transport Services  Restaurants and Hotels  Other Services  Source: TURKSTAT, CBT.
The fact that the US has enjoyed an unparalleled period of strong and continuous growth during the nineties owes a great deal, of course, to the policies of the US authorities. They have had to steer a difficult path between maintaining conditions conducive to growth while not being seen to underwrite the risks of "irrational exuberance" in security markets or lax lending standards by banks. This balance became especially difficult to strike towards the end of last year in the face of sharply lower corporate earnings projections and widening spreads on higher risk borrowings. As some lower-rated companies found access to the capital markets increasingly difficult, and as banks tightened credit standards, liquidity fears for some borrowers intensified. These factors, together with a sharp downturn in business optimism and mixed economic data, added to growing fears of a recession this year. Such a climate of uncertainty calls for clear signals from the authorities and over the past two months the Fed has responded in a decisive fashion. The adjustment in the policy bias and recent cut in rates have increased the probability of a soft landing and will, from an international perspective, reduce the risk of a sharp reversal of capital flows into US markets. The combination of a slower growing - but still expanding - US economy and a weaker dollar should provide a more sustainable pattern of current accounts and capital flows, reducing the risk of instability in financial markets in both the US and abroad.