and energy rose 1 - 1 / 2 percent over the twelve months ending in may, compared with 3 / 4 percent over the twelve months ending last december. the step - up in inflation in recent months reflects the ability of more companies to effectively raise prices, but it also has been exacerbated by transitory factors, such as the pass - through of large increases in energy prices and by large apparently one - time adjustments in such items as lodging away from home. the federal reserve will need to be alert to signs of higher inflation, and be ready to respond in order to fulfill its commitment to maintain price stability as a necessary condition for maximum sustainable economic growth. household financial conditions before i turn to the business sector, let me spend a few minutes on the financial condition of the household sector. some commentators have expressed concern about the rapid growth in household debt in recent years. they fear that households have become overextended and will need to rein in their spending to keep their debt burdens under control. my view is considerably more sanguine. although there are pockets of financial stress among households, the sector as a whole appears to be in good shape. it is true that households have taken on quite a bit of debt over the past several years. according to the latest available data, total household debt grew at an annual rate of 10 percent between the end of 1999 and the first quarter of 2004 ; in comparison, after - tax household income increased at a rate of about 5 percent. but looking below the aggregate data, we must understand that the rapid growth in household debt reflects largely a surge in mortgage borrowing, which has been fueled by historically low mortgage interest rates and strong growth in house prices. indeed, many homeowners have taken advantage of low interest rates to refinance their mortgages, some having done so several times over the past couple of years. survey data suggest that homeowners took out cash in more than one - half of these “ refis ”, often to pay down loans having higher interest rates. on net, the resulting drop in the average interest rate on household borrowings, combined with the lengthening maturity of their total debt, has damped the monthly payments made by homeowners on their growing stock of outstanding debt. the federal reserve publishes two data series that quantify the burden of household obligations. the first series, the debt - service ratio, measures the required payments on mortgage and consumer debt as a share of after - tax personal income. the

the gao recommended that the board consider taking additional steps to enforce compliance with the anti - tying provisions. our proposed interpretation and guidance is intended to help banks understand this rather complex compliance area. i should mention that we also received a comment letter on the proposed interpretation from the department of justice. this letter, which is available on the department web site, expresses concern that the bank anti - tying statute itself may suppress competition and harm consumers, especially as it is applied to large customers. the department has recommended that the board interpret the bank antitying statute in a manner similar to the federal antitrust laws. unlike the general antitrust laws, the courts historically have found that the anti - tying statute applicable to banks generally does not require a showing of market power to support a violation. alternatively, the department has recommended that the board exercise its statutory authority to exempt large, corporate customers from the reach of the bank anti - tying statute. these are all issues the board will have to carefully consider as we move toward finalizing the interpretation and guidance in this area. conclusion in conclusion, the economic expansion is now broad based, and the financial strength of businesses should help provide the foundation for continued growth in the months ahead. the financial executives international has contributed to the financial strength of businesses today by providing corporate financial officers with information on evolutions in best business practices and processes and by serving as an effective forum for dialogue on emerging issues in finance and governance. i encourage you, as senior officers of your firms, to keep this discussion alive within your firms. when businesses have a strong focus on corporate ethics, a robust internal control culture, and transparent disclosure, financial markets can provide capital efficiently.