rose sharply over the period from may to july, reflecting rapid increases in energy and food prices. during the same period, price inflation for goods and services other than food and energy also moved up from the low rates seen in the spring, as the higher costs of energy, other commodities, and imported goods were partially passed through to consumers. recently, however, the news on inflation has been more favorable. the prices of oil and other commodities, while remaining quite volatile, have fallen, on net, from their recent peaks, and the dollar is up from its mid - summer lows. the declines in energy prices have also led to some easing of inflation expectations, as measured, for example, by consumer surveys and the pricing of inflation - indexed treasury securities. if not reversed, these developments, together with a pace of growth that is likely to fall short of potential for a time, should lead inflation to moderate later this year and next year. nevertheless, the inflation outlook remains highly uncertain. indeed, the fluctuations in oil prices in the past few days illustrate the difficulty of predicting the future course of commodity prices. consequently, the upside risks to inflation remain a significant concern as well. over time, a number of factors should promote the return of our economy to higher levels of employment and sustainable growth with price stability, including the stimulus being provided by monetary policy, lower oil and commodity prices, increasing stability in the mortgage and housing markets, and the natural recuperative powers of our economy. however, stabilization of our financial system is an essential precondition for economic recovery. i urge the congress to act quickly to address the grave threats to financial stability that we currently face. for its part, the federal open market committee will monitor economic and financial developments carefully and will act as needed to promote sustainable economic growth and price stability.

, risks stemming from the unsettled international financial market environment that could negatively affect this scenario. the rate of increase of prices in the commercial property sector is easing following exceptional rates of appreciation in recent times. the continued uncertainty in the global financial markets may be impacting on investor demand for commercial property by increasing funding costs and tightening credit conditions. in addition, commercial property tends to follow the economic cycle more closely than residential property, and near - term developments in the real economy could be particularly important for the performance of the commercial property market. anecdotal evidence suggests that commercial property investors are currently maintaining a cautious investment strategy and, consequently, capital appreciation is expected to ease further in early - 2008, as transaction activity slows. the cbfsai has been concerned for some time about the level of private - sector indebtedness. there has been a welcome improvement with respect to these trends recently, namely, the rate of credit growth has slowed and the rate of accumulation of private - sector indebtedness has moderated accordingly. the most recently published figures indicate that private - sector credit increased year - on - year by about 16 per cent compared with annual rates in the region of 30 per cent in early - 2006. it is expected that this downward trend will continue into 2009. however, an important distinguishing feature of the irish economy has been that irish households do not appear to have consumed their capital gains on housing to any great extent and, accordingly, their consumption does not appear as reliant on credit as is the case in many other countries which have experienced relatively large cumulative increases in house prices. two additional mitigating factors are the significant share of households with no mortgage on their primary residence and the substantial net worth of many households. overall assessment of financial stability notwithstanding the deterioration in the outlook for financial stability both here and abroad in recent months, domestic financial institutions remain sound and capable of absorbing shocks. the strength of the irish economy is continuing to support the stability of the financial system, and ireland has a healthy domestic banking sector with good shock - absorption capacity. membership of the european economic and monetary union has increased our ability to manage the challenging international environment. the health of the banking sector remains robust according to the key indicators. the sector is profitable and well capitalised. the level of non - performing loans remains low by historical standards. finally, the sector ’ s funding arrangements are good. the central bank and financial services authority with the cooperation of the key domestic banks has regularly stress -