of march 2011. inflationary expectations remain anchored close to the mid - term target of the bank of albania. in addition to the domestic demand, the relative stability of the exchange rate contributed to preventing further inflation increase. more specifically, during 2011 q1, inflation reflected a hike in prices of some food items, further increase of oil prices as well as an upturn in medication prices. with the warmer season approaching, domestic agricultural output is expected to contribute to an upward domestic demand, thus buffering high pressures from export prices. the bank of albania deems that policies to encourage domestic production, which reduces the exposure of the albanian economy to external shocks, are necessary. annual inflation of tradable goods sector in 2011 q1 was 4. 9 %, explaining about 75 % of the headline inflation. primary reasons for this conduct were the actual and expected aggravated conjunctures of commodity prices, unusual geo - political situation in large economies of oil and agro - industrial products, as well as unfavourable weather conditions that has damaged bis central bankers ’ speeches agricultural production. inflation of non - tradable goods of the cpi basket, which represent internal pressures, in the first quarter of 2011, reached 2 %. this value is close to that of the previous year and comparable to its historic average. inflation trend, without counting temporary effects on it, that is core inflation, was close to 3. 0 %, reaching high historical values. this long - term inflation component shows that inflationary outlook in the economy, though reflecting a value that is relatively higher, remains well anchored with the bank of albania target. in the future, inflationary pressures along the time span of action of the monetary policy are forecasted to be high, but their intensity will be falling over the course of the year. i would like now to address, in more details, the factors that determine inflation developments and relevant risks. during 2011 q1, world economy demonstrated growth, while unemployment remains high. economic growth is expected to intensify, mainly owing to the private sector, hence providing the conditions for attracting the public sector. as a result of high divergences among countries, authorities have to deal with diverse challenges ; in advanced economies focus is on reducing public debt and adjusting economic agents ’ financial balances, while in emerging economies the main risk appears to be about overheated economy and rapid credit growth. inflationary pressures are considered to follow an upward trend due to supply shocks in the oil and other commodity

be funded with interest - bearing debt capital. moreover, the expansion of the balance sheet will substantially increase the snb ’ s credit and currency risks. strengthening the snb ’ s provisions the financial crisis has highlighted how important it is for the snb to have a solid equity capital buffer. without it, the snb would be unable to carry the risks on its currency reserves internally – nor would it be in a position to take the measures to stabilise the financial system that proved essential in the financial crisis. equity capital, furthermore, is central to the independence and credibility of the snb. in spite of the extensive crisis measures we have taken, the snb ’ s balance sheet is as robust as ever – though its financial stress resistance is heavily dependent on the distribution reserve, which is high at present. like the provisions, this forms part of the snb ’ s equity capital. in the short term it helps to absorb any losses, while in the longer term it is transferred to the confederation and the cantons as a distribution of profits. if it were not for the distribution reserve, the snb ’ s resilience could only be guaranteed to a limited degree. there are two reasons for this : for one thing, a need for measures to safeguard the system could arise unexpectedly, greatly increasing the risks faced by the snb suddenly ; and for another, these risks are significantly higher because of the permanently expanded balance sheet. the snb has therefore decided to additionally strengthen its equity capital, and thus its balance sheet. the snb ’ s ability in the long term to respond to a crisis must not be dependent on the distribution reserve. this is only possible if the snb increases its provisions from their current level. in the past, it increased its provisions each year at a rate equal to average nominal gdp growth for the previous five years. the snb now intends to double this allocation in financial years 2009 – 2013 : instead of approximately chf 1. 5 billion, some chf 3. 0 billion will now be allocated to provisions in 2009. strengthening provisions will reduce the potential for future profit distributions to the confederation and the cantons. on a current view, however, the annual profit distribution of chf 2. 5 billion can be expected to be maintained until 2017, when the current agreement on profit distribution lapses. this view is substantiated, in particular, by the fact that the distribution reserve will increase considerably as a result of the profit expected for the year