additional slack. the committee said that it will want to be reasonably confident that inflation will move back to 2 percent over the medium term. on a 12 - month basis, headline inflation in february, as measured by the personal consumption expenditures price index, stood at 0. 3 percent ; meanwhile, core inflation, which excludes volatile energy and food components, was 1. 4 percent. these low current readings are partly a consequence of two transient shocks – the dramatic decline in oil prices and the effect of the appreciation of the dollar on import prices. before those shocks, both headline inflation and core inflation were running at about 1. 5 percent. when the effects of these shocks pass, i expect that inflation will return roughly to those earlier levels and then rise gradually to our 2 percent objective over the medium term as labor and product markets tighten further. despite the current low inflation readings, survey - based measures of inflation expectations in the united states have been stable. however, market - based readings on inflation compensation have declined significantly since mid - 2014. i view this decline as more likely reflecting movements in risk premiums and other transitory factors, rather than shifts in longer - term inflation expectations. still, it will be important to keep an eye on the performance of inflation breakevens. i expect that economic conditions will support the first rate increase later this year. i do not expect that such an increase or the associated market reaction will materially restrain the bis central bankers ’ speeches progress of the economy. from a macroeconomic perspective, the precise timing of liftoff is less important than the path of subsequent additional rate increases. my view is that, if the economy continues on its expected path, it will be appropriate for a time to increase rates fairly gradually. of course, if the economy improves faster or inflation increases more than expected, it will be appropriate to raise rates faster. and if economic performance disappoints or inflation remains lower than expected, it will be appropriate to delay liftoff or raise rates more slowly thereafter. there are several reasons why it may be appropriate to raise rates somewhat gradually, including the proximity of the zero lower bound for interest rates and continuing economic headwinds in the wake of the crisis. 1 i would like to explore a rationale that has received somewhat less attention, which is the unusually high level of uncertainty today about capacity measures such as the natural rate of unemployment. 2 uncertainty about the precise level of these indicators becomes more important for policy as the expansion continues and the economy approaches

curbing inflation expectations and not allowing inflationary spiral to exacerbate. according to our estimates, annual inflation is expected to be higher than we forecast in april but lower than its current level. due to the high base effect in the first half of this year annual inflation will return to the target only in the second half next year. third. monetary conditions remain accommodative. interest rates on loans and deposits are low as compared to current and expected inflation. our decisions to raise the key rate in march and april have not yet been fully reflected in banks ’ interest rates. banks ’ lending and deposit rates are closely connected with yields on government bonds, ofzs. ofzs are risk - free ruble assets for banks and the pricing of all other ruble products of banks is pegged to them. ofz yields with various maturities change together with the key rate, though to a different extent. the key rate impacts to the most extent the yields on short - term ofzs, with maturities of up to two - three years. these yields have increased significantly over the past two months. they will impact the cost of short - term loans and also deposit rates, which have already started rising. meanwhile, yields on long - term ofzs are largely determined by long - term inflation expectations, the assessment of the macroeconomic policy stability, and external environment. the cost of long - term financing of investment projects as well as mortgage loan rates depend precisely on the yields on long - term ofzs. pursuing monetary policy to stabilise inflation and raising the key rate to achieve this, the bank of russia curbs growth in long - term interest rates in the economy. this quarter experience is a good illustration of the above. despite the increase in the key rate on three occasions since last march for a total of 125 basis points, the yields of long - term ofzs are currently on the same level as in late march. as far as the pace of lending growth is concerned, it remains high both in corporate and particularly retail segments. thus, mortgages are rising by more than 25 % year - on - year. in addition, retail loans are heating consumer demand. we are also concerned by the fact that lending is growing due to loans to borrowers with a high debt burden. therefore, we resume prepandemic macroprudential add - ons on unsecured loans from 1 july and on mortgage loans with a low down payment