world demand and interest rates may moderate world economic activity ( table 3 ). in the case of foodstuff prices, current aggregate indexes are above their peak of 2007 – 2008, although the composition of products showing the bigger increases differs. in any case, the velocity of these hikes has been greater than that of the last episode ( figure 12 ). both futures prices and analysts ’ projections assume that the prices of these products will not increase further but will rather tend to normalize. still, it cannot be ruled out that if supply - side problems in the agricultural sector persist within a context of strong growth in emerging economies, pressures on the prices of foodstuffs may be intensified. regarding the internal propagation of the shock to commodity prices, food prices have increased less locally than internationally, indicating a compression of margins in the industry. overall, this compression reverses the expansion they posted in the second half of 2008 and throughout 2009, after the fall in external prices ( figure 13 ). however, it cannot be ruled out that, if international prices continue to rise, further effects on domestic inflation may be observed. as for oil, due to conditions inherent in this market, pass - through to consumer prices has been instantaneous. facing additional shocks, the stabilization system in place could help smooth short - term fluctuations in fuel prices. nonetheless, it is not its objective, in a mediumterm horizon, to isolate local price movements from external ones. in addition, the effects might be amplified if the availability of hydroelectric energy diminishes increasing the dependence on thermal energy generation based on oil derivatives. recall that in 2007 – 2008 energy prices rose considerably because of an electric production mix that was more intensive in thermal generation at a time that the oil price was hitting record highs. today, the marginal cost of electric generation is 25 percent below its peak of 2008 ( figure 14 ). another difference between the current situation and the episode of 2007 – 2008 has been the evolution of the exchange rate. whereas then the exchange rate depreciated continually, amplifying the effect of external price increases, in the past few months the peso - dollar parity has shown large swings, and is now, as of the statistical closing of this report, at around clp480 per dollar. after the bank ’ s announcement of the reserve accumulation program in early january, the peso depreciated from some clp465 per dollar to nearly clp500 per dollar. after that there was

possible that the different paces of recovery between emerging and developed economies and the exchange rate tensions in place result in a delay in the withdrawal of the monetary stimulus, causing an immediate increase in global inflation and calling for more aggressive monetary policy responses later on. conclusions today monetary policy conduct is facing an important challenge. headline inflation is near the target and trend inflation is back to above - zero figures, albeit still substantially below 3 percent. however, inflationary pressures have increased globally raising inflation forecasts, spreading concerns about future inflation in the different economies, including our own. the recovery process of the chilean economy has consolidated and output gaps are closed. as i said a while ago, the increases we have seen in international prices of foodstuffs and oil will result in total inflation surpassing the upper bound of the tolerance range during some quarters. our main task today is to ensure that the convergence of trend inflation to the target occurs with as few setbacks as possible. monetary policy conduct will aim at the inflationary trend remaining in levels consistent with the tolerance range, so that towards the end of the projection horizon headline inflation stands around 3 percent. there are important risks, though. the recent experience with international price shocks has shown that preoccupation per se will not solve their inflationary consequences. it is absolutely necessary to take action every time these shocks give signs that they may propagate from specific sectors to the rest of the prices in the economy. preventing such propagation is the primary task of monetary policy. in this report ’ s baseline scenario, the foreseen trajectory of monetary policy meets this objective. in any case, as it has done in the past, the board will adopt any necessary measures to deal with events altering the macroeconomic scenario and the inflationary outlook. as our country ’ s economic history has shown, and reminded us unequivocally just a few years back, inflation is an evil that hits especially hard those who have the least resources. the main contribution that the central bank can make to the country ’ s development is to keep inflation low and stable, paving the way for sustainable growth. making today the necessary changes to monetary policy will avert more severe adjustments in the future that would certainly increase the associated social costs. accordingly, the board will continue to conduct monetary policy so that annual projected inflation into a two - year horizon stands at 3 percent. thank you. bis central bankers ’ speeches figure 1 inflation indicators ( annual change, percent ) - 3 - 3 cpi cpix cpix