We revised our assumptions for TL-denominated import prices upwards for the upcoming period compared to the previous reporting period. On the other hand, we envisage that the latest domestic developments will curb domestic demand particularly in the short term. Accordingly, we revised our output gap forecasts downwards. The year-end consumer inflation forecast for 2016 remained unchanged as downside effects and upside effects on inflation cancelled each other out. On the other hand, end-2017 consumer inflation forecast was revised upwards by 0.5 points as the upside effects driven by import prices outweighed the effects of the downward revision in the output gap and food inflation. In addition to these forecasts, we summarize a variety of risk assessments regarding the overall macroeconomic outlook and the monetary policy in the Risks and Monetary Policy section of the Inflation Report. You can refer to the Report for details. Esteemed Guests, In the final part of my speech, I also would like to share some information on structural developments I mentioned in the previous Inflation Report briefings. Previously, I have emphasized that long-lasting price stability would only be achieved through cooperation among institutions. Moreover, I underlined the role of structural factors in the higherthan-targeted inflation realization and price volatility in certain products. We continue to take actions in this regard. Last month, secretarial affairs of the Food Committee were entrusted to the Central Bank of the Republic of Turkey. From now on, the Committee will be headed by the Deputy Prime Minister and measures regarding food prices will be evaluated efficiently.

Meanwhile, the tendency to increase prices was down quarter-on-quarter as implied by the diffusion indices for core indicators, while our alternative core inflation indicators posted a more solid decline. In conclusion, considering all indicators capturing the underlying trend and the pricing behavior, I would like to say that underlying inflation continued to improve in the third quarter. Esteemed Guests, Economic activity slowed in the second quarter as we predicted in the July Inflation Report. The GDP grew by 0.3 and 3.1 percent in quarter-on-quarter and year-on-year terms, respectively (Chart 12). We observe that the main driver of annual growth was final domestic demand, whereas net exports provided more negative contribution to growth due to the tourism slump (Chart 13). The contribution of final domestic demand to growth has been through both public and private consumer spending, while investments remain subdued. Public spending provided a large (1.7 points) contribution to growth as in the first quarter. On the other hand, value added gains were limited in industrial and services sectors with strong linkages to tourism. 6 / 10  BIS central bankers' speeches  Indicators for the third quarter of 2016 point to further deceleration in economic activity. In addition to the deepening tourism slump, the mid-July domestic turbulence and working day losses due to religious holidays dampened production activities. Therefore, although the sharp drop in July’s industrial production was offset by a rapid recovery in August, we expect production to fall below the second-quarter level in the third quarter.