and highly dynamic consumption will take pressure off the monetary impulse to support the recovery of the economy, so it should begin to moderate earlier than expected in the last report. this will prevent an increase in inflation — currently at around 3. 5 percent — from raising the cost of living and eroding the purchasing power of the households most affected by the crisis. even so, it is estimated that, in the central scenario, the monetary policy rate ( mpr ) will stay below its neutral level throughout the policy horizon, underpinning a recovery process that will continue to be met with significant challenges. i will now describe our assessment of the economic outlook and related risks. ii. the macroeconomic scenario so far into this year, the chilean economy has outperformed expectations, notably because the impact of the quarantines on activity was significantly milder than we anticipated. in fact, although activity declined during march and april, the effect of the increased sanitary restrictions was about one fifth of what we saw at the onset of the pandemic. several factors have contributed to this result : the greater adaptation of businesses to the social page 1 of 27 distancing requirements ; the support of favorable financial conditions ; adjustments to the step - by - step plan ; and the boost to demand by public policies ( figure 1 ). pension fund withdrawals and massive fiscal transfers have been fundamental determinants of the dynamism of private consumption, which has spearheaded the economic upswing. in the first quarter, private consumption had already grown by almost 5 percent annually, with a nearly 50 percent increase in spending on durables, most notably to purchase technological items and automobiles. information from retail trade, supermarket sales, and electronic billing shows that consumption of goods remained dynamic through april and may. spending on services, despite recovering part of last year ’ s decline, continues to show negative annual variation rates, reflecting the persistence of supply - side constraints. in the first quarter, gross fixed capital formation ( gfcf ) posted slight annual growth, driven by the recovery of its machinery & equipment component, which grew 21. 5 percent annually. the construction & works item, on the other hand, fell by 10 percent year - on - year, due to works being slowed down and / or postponed because of the pandemic ( figure 2 ). the labor market has shown a noticeable, albeit heterogeneous, improvement with respect to its worst levels of last year. the measured magnitude of this improvement varies depending on

- 10 - 10 - 20 - 20 98 00 02 04 06 08 10 consumer corporate housing consumer, from 181 days to 1 year consumer, over 3 years commercial, 30 - 89 days commercial, from 181 days to 1 year housing, over 3 years ( 1 ) data for may 2010 are provisional. ( 2 ) sum of commercial and foreign trade loans. ( 3 ) weighted averaged rates of all operations performed in the month. ( 4 ) nominal rates. ( 5 ) uf - indexed rates. sources : central bank of chile and superintendence of banks & financial institutions. figure 7 ees : inflation expectations cpi inflation ( * ) ( annual change, percent ) ( percent ) - 2 - 2 - 4 - 4 at december 2010 in one year in two years march 2010 ipom june 2010 ipom ( * ) gray area : as from second quarter 2010, forecast. sources : central bank of chile and national statistics bureau ( ine ). figure 8 mpr and forward curve ( percent ) jul. jul. ees june 2010 forward, march 2010 ipom mpr jul. jul. jul. ees march 2010 forward, june 2010 ipom eof, first half of june source : central bank of chile.