I strongly believe that a better understanding of the rationale behind the changes in our forecasts is very important for communicating our policy as well as for the viability of the principles of transparency and accountability; therefore, I would like to explain these factors in detail. Better-than-expected outcomes regarding unprocessed food prices urged us to revise our assumption for food inflation downwards. Accordingly, while we decreased our food inflation assumption for end-2010 from 9 percent to 7.5 percent, we maintained our assumptions for food inflation for 2011 and 2012 at 7 percent (Table 3). The change in question had a 0.4 percentage point downside impact on end-2010 inflation. BIS Review 133/2010  13  With the increased downside risks regarding global economic activity, oil prices in the second quarter were below the levels assumed in the April Inflation Report (Figure 32). In this context, while we revised our assumptions for crude oil prices for 2010 and 2011 downwards, oil price assumptions for 2012 were maintained at USD 90 (Table 3). This revision shifted the 2010 inflation forecast down by 0.2 percentage points. Core goods and services inflation, which we believe to reflect the main trend of inflation, declined more than we had anticipated. This decline led to a 0.2 percentage point fall in our year-end inflation forecast. The contribution of aggregate demand conditions to disinflation in the revised forecast is slightly higher than envisaged in the previous Report due to the weaker external demand Outlook.

Its third article states that “the Bank shall have as its purposes to look after the stability of the currency and the normal functioning of internal and external payments.” It then adds that “the authority of the Bank, for these purposes, shall include regulating the amount of currency and credit in circulation, the performance of credit transactions and foreign exchange, as well as the issuance of regulatory provisions regarding monetary, credit, financing and foreign exchange matters.” In addition, it establishes that “no public expenditure or credit of any nature may be financed either directly or indirectly with loans granted by the Bank.” Finally, article six states that “when passing its resolutions, the Board shall consider the general orientation of the Government’s economic policies.” This is a clear mandate for the Central Bank of Chile, by which it establishes instruments and mechanisms for the designation and removal of Board members, as well as vehicles for coordination with the Executive. In addition, its autonomy is further reinforced and legitimated through the achievement of said objectives and by the Bank’s communication and transparency policy, whose effects go far beyond the provisions in the law regarding the obligation to inform about its decisions. In this presentation I will address some of the main elements concerning the autonomy of central banks, as well as an evaluation of the principal accomplishments of the past twenty years. The reasons for pursuing autonomy High inflation is costly for society because it is associated with higher price volatility, which distorts resource allocation.