over the two - year policy horizon. on the one hand, the increase in international energy and food prices has been significant and the outlook is for a more persistent rise than usual, which is considered in our projections. moreover, these additional price pressures occur in a context where inflation is not only high and has become more persistent, but also at a time when the initial causes of the rise in inflation are still in the process of being resolved. the activity gap remains wide, high consumption persists and the exchange rate remains above what its traditional fundamentals suggest. this scenario has an additional difficulty. evidence shows that high and prolonged inflation feeds back over time through indexation and the evolution of expectations. a situation where this dynamic intensifies not only makes it more difficult to bring down inflation, but also increases the costs of doing so. for some time now, the inflation expectations of finance and economics professionals have that they foresee a slower convergence of inflation than projected by the bank and, more recently, household and business inflation expectations have risen, a phenomenon that no doubt calls for us to be very careful about downplaying our efforts to contain inflation. against this background, i can only stress once again the importance of our economy being able to address the imbalances that have accumulated over the past year. the government is making a very important effort to address the most urgent needs in a targeted manner and within a budgetary framework that also seeks to stabilize public spending at levels consistent with the long - term fundamentals of the economy. it has thus expressed the importance of reestablishing macroeconomic balances in order to be able to build on them to find sustainable solutions to the multiple problems it faces. at the central bank, we are primarily responsible for bringing inflation down to levels in line with the 3 % target. consistent with this, in the last year we have applied a very significant increase in the monetary policy rate ( mpr ), which already has brought it closer to the levels we estimate are necessary for inflation to return to the 3 % target over the policy horizon, that is, within the next two years. a rising mpr is certainly not an innocuous event for an economy. it has impacts in many areas. indeed, our projections anticipate that activity will contract for several quarters, an outcome that is in part the necessary response of the economy to adjust the overspending seen last year to levels that are sustainable with our productive potential. as complex as it may seem at

fundamentals have required a more contractionary monetary policy to achieve such convergence. this has driven us to raise the mpr to 9 % and we estimate that new adjustments of a smaller magnitude will be needed to ensure inflation convergence to 3 % in two years'time. risks remain high, particularly because of the level and persistence of inflation i just mentioned. i will now describe our assessment of the economic outlook and associated risks. the macroeconomic scenario and projections as i said before, inflation is still on the rise, and now stands significantly above our estimates in the march mp report. with the cpi figure that was released this morning, a monthly variation of 1. 2 %, the y - o - y increment of the cpi rose to 11. 5 % in may. the core cpi - which excludes volatile items - posted an annual change of 9 %. this figure has remained mainly linked to the sustained rise in the prices of goods, but has recently also shown a higher contribution from its food and services components, consistent with the dynamism of consumption during the first quarter of the year and with the adjustments of indexed prices and utility rates that normally take place in march ( figure 1 ). the excessive increase in domestic demand in 2021 continues to push inflation up over the past year. in any case, its recent behavior has been more strongly affected by external cost pressures coming from price hikes in foods and commodities, plus the persistent difficulties in production chains and supply at the global level. all this in a context of very volatile exchange rate in the past several weeks, which is now above its march figure, and a still high activity gap. unlike previous quarters, most of the inflationary surprise of recent months is related to the prices of foods and volatile items. the inflation accumulated between march and april — 3. 3 percentage points — was significantly more than we projected in the march report. when broken down, the surprise shows that over 90 % of it came from higher - thanexpected increases in the prices of foods, energy, and other volatile components ( figure 2 ). inflation expectations two years out are still above 3 % annually, although the biggest increases are seen in the shorter - term measures. at one year, the median of the surveys to economists ( ees ) and financial specialists ( fts ) place inflation at 6. 2 % and 6. 8 %, respectively, which compare with 5. 3 % and 7. 4 % last mach. for the end of the monetary