on a sample of investment banks ( ib ), consensus forecast and international monetary fund. wti oil price ( us $ / barrel ) 2008 ( f ) 2009 ( f ) jan. mpr mar. 08 jan. mpr mar. 08 doe ( 11 mar ) deutsche bank ( 07 mar ) jp morgan chase ( 14 mar ) scotiabank ( 14 mar ) lehman brothers ( 29 feb ) barclays ( 19 mar ) - - - - - - goldman sachs ( 04 mar ) merril lynch ( 19 mar ) - - - - - ib's mean - - - - central bank of chile actual mean ( 1 ) excludes goldman sachs and merrill lynch. ( 2 ) up to 24 march 2008. sources : central bank of chile based on a sample of investment banks ( ib ), consensus forecast and international monetary fund. we are in the presence of a significant relative price shock. the relative price of foodstuff and energy has changed in a number of countries. given the persistency of these international relative prices changes, domestic prices are adjusting accordingly, giving the appropriate signals for resource reallocation. chile is an interesting case in this respect. relative food prices for several countries ( ratio ) 1, 2 1, 2 1, 1 1, 1 1, 0 1, 0 0, 9 0, 9 0, 8 0, 8 0, 7 0, 7 usa mexico chile euro zone china brazil new zealand sources : each country ’ s central bank and statistics bureau, bloomberg and international monetary fund. relative energy prices for several countries ( ratio ) 1, 6 1, 6 1, 4 1, 4 1, 2 1, 2 1, 0 1, 0 0, 8 0, 8 usa mexico chile euro zone china brazil new zealand sources : each country ’ s central bank and statistics bureau, bloomberg and international monetary fund. the impressive scale of the supply shocks and their transmission to chilean domestic prices can be appreciated by comparing the unusual increase of some prices in 2007 with their average increase since the year 2000. non - perishable foods rose by nearly 15 % last year, while only around 2 % per year in 2000 - 2006. the prices of fresh fruit and vegetables – even considering high - price years like 2002 and 2005 – fell by an average of nearly 2 % between 2000 and 2006, while in 2007 they increased by more than 30 %. during last year, the price of gasoline unexpectedly increased by almost 15 %. one characteristic of the chilean economy is that changes in

addition, the persistence of relatively high inflation is likely to diminish the degree to which expectations are anchored. on the one hand, inflation expectations may increase, making it costlier to bring it back down. on the other hand, medium and long term inflation expectations are likely to become more sensitive to shocks, introducing undesired volatility to the economy with the associated costs of said volatility. all this can derive on an inflation spiral, fueled by higher prices, higher indexation practices, accelerating wages and increases in inflation expectations. these processes can be very persistent and extremely costly to the economy. in some cases they may even result in sudden uncontrolled inflation acceleration with catastrophic consequences. nevertheless we have learnt the lesson, and we know today the importance of price stability and appropriate risk management. references bernanke, b. ( 2007 ), “ inflation expectations and inflation forecasting, ” speech delivered at the monetary economics workshop of the nber summer institute, cambridge, massachusetts, july 10. de gregorio, j. ( 2007 ), “ comments, ” in clarida, r. ( ed. ) g7 current account imbalance, sustainability and adjustment, nber and chicago university press, also as documento de politica economica no. 115, banco central de chile. fatas, a. ( 2002 ), “ the effects of business cycle on growth ”, en n. loayza y r. soto ( eds. ), economic growth : sources, trends and cycles, banco central de chile. gali, j. y l. gambetti ( 2007 ), “ on the sources of the great moderation ”, mimeo, upf. mishkin, f. ( 2008 ), “ monetary policy flexibility, risk management, and financial disruptions, ” speech delivered at the federal reserve bank of new york, january 11. obstfeld, m. and k. rogoff ( 2007 ), “ the unsustainable current account revisited, ” in clarida, r. ( ed. ) g7 current account imbalance, sustainability and adjustment, nber and chicago university press. ramey, g. y v. ramey, ( 1995 ), “ cross - country evidence on the link between volatility and growth ”, american economic review, vol. 85, no. 5, pp. 1138 - 1151.