globalization and strong growth of the world economy have opened great development opportunities for the chilean economy, but at the same time have increased the risks of shocks coming from abroad. the natural question is what should be the policy regime that most adequately could maximize the benefits of interacting with a world that becomes ever more integrated. here, as elsewhere, the best policy is prudence. this includes macroeconomic policies and institutions that contribute to stability, to keeping a sound financial system and easing the adjustments to less favorable world scenarios. chile ’ s present policy regime ( i. e., mature inflation targeting regime with floating exchange rate, fiscal policy whereby government spending is tied to the public sector ’ s permanent income, thus enhancing its solvency before transitory terms of trade improvements, and an efficient system to regulate and supervise the baking system ) increases resilience and facilitates the adjustment of the chilean economy to less favorable external scenarios. this policy framework permits to prevent episodes of unsustainable expansion and crises that accompanied terms of trade cycles in the past. in particular, with inflation expectations well anchored around 3 %, the central bank of chile can apply countercyclical monetary policy. furthermore, the flexible exchange rate helps to make foreign exchange adjustment if and when circumstances so warrant. final remarks the world economy is headed toward completing its most dynamic five - year period in over thirty years. strong growth in the world and in china and india are driving a very good terms of trade scenario, together with good access to our products in world markets. thanks to its openness and to its macroeconomic policy framework, chile has reaped the benefits of this good scenario both in the sense of reaching average growth close to the trend and in accumulating resources that may permit to prevent a real appreciation while ensuring funding for public spending, should the terms of trade deteriorate. this policy framework permits to prevent episodes of unsustainable expansion and crises that came with terms of trade cycles in the past.

part of the range. important elements to consider are the strength of consumption and the recovered dynamism of investment. private - sector expectations have internalized this higher growth expectations in their 2007 gdp projections. the aggravation of natural gas restrictions, combined with low rainfall, has increased the risk of energy shortage and higher costs. for the moment, the impact is believed to be nonsignificant, except obvious effects on electricity, gas and water, and have concentrated mainly in smaller value added from electric generation. however, this is an element of risk in the internal scenario that must be monitored with special care, in particular because of its medium - term implications. regarding inflation, the main development of the past few months have been sharp rises in the prices of non - perishable foods ( i. e. grains, powdered milk and others ) and of fuels, which combined with the also sudden increase in the prices of perishable foods, have resulted in a major rise of measured cpi inflation, way above projections in may ’ s monetary policy report. as a result, cpi and cpix variation stands at 3. 2 % per annum, while cpix1 inflation stands at 3. 5 %. the rebound of cpix1 inflation has reflected the sharp increase in the prices of some non - perishable foods, the cpix has been influenced by the above plus the rise in electric rates, and the cpi by all the above plus the rise in prices of fuels and perishable foods. the different measures of trend inflation have risen in recent months, in line with the reduction in output gaps and the upturn of the prices of foods. in contrast, labor cost pressures are limited despite the strong increase in the wage index. short - term inflation expectations have also changed, and there is widespread belief that inflation will be, in the short term, higher than foreseen in may ’ s monetary policy report. short - term inflation expectations one year ahead are close to 4 %. over a longer horizon, expectations remain well anchored to 3 %, reflecting the credibility of the central bank ’ s commitment with target inflation. long - term interest rates have increased recently, partly because of the rise in international rates for the same maturities and because of stronger growth rates. meanwhile, nominal rates have been also influenced by higher observed inflation. growth rates of monetary and credit aggregates have moderated but are still high. despite these changes in the margin, financial conditions are still positive.