below the target in clothing, footwear and communications groups, whereas it goes beyond the target in all other groups. in this respect, rigidity of inflation in the services group constituted an important handicap against the fight against inflation in 2006 as it did in the previous years. end - year inflation became 12. 2 percent in this group. rents in the services group showed a great increase and an annual inflation rate of 20 percent remained above the general consumer inflation. inflation figure of 12. 9 percent in transportation services is another important factor that determines the inflation rate in the services group. distinguished guests, consumer prices increased by 0. 23 percent on monthly basis and remained below the expectations in the last month of 2006 and the year 2006 ended with an annual inflation of single digit as 9. 65 percent. this figure is well above our end - year target of 5 percent. although divergence from the inflation targets is experienced in the countries implementing this regime, it is very upsetting for us to observe such a great divergence from this target in the first year that we embarked on full - fledged inflation targeting regime. as a requisite of the principle of accountability, the detailed “ open letter ” elaborating the reasons of this divergence together with the policy measures to be taken will be sent to the government as soon as possible and be made public. dear guests, due to the rapid increase in inflation in the first seven months of 2006, its being quite higher than expectations especially in april and may, fluctuations experienced in the financial markets and the uncertainty perceptions created by political developments, inflation expectations diverged from the inflation target. inflation expectations of 12 - months increased to 8. 1 percent in july from 5. 5 percent in april ; while that of 24 months increased to 6. 1 percent in july from 4. 7 percent in april. upon the emergence of the possibility of a permanent deterioration in expectations causing inflation to diverge from the targets in the medium term, the monetary policy committee made effective use of the short - term interest rates as the basic policy instrument. within this context, the committee implemented a strong tightening policy and increased the policy rates by 425 bps to 17. 5 percent in the june - july period in order to put an end to the deterioration in medium and long - term inflation expectations and also to render the inflation targets attainable in the medium term. following this strong monetary tightening of the monetary policy committee and the measures taken for financial stability, fluctuations in financial markets gradually decreased and medium and

a satisfactory level. the main reason for the delay and weakness of the improvement in the labor market despite the results taken in the other fields of economy are the structural problems in the labor market. agricultural sector leads the list of these structural problems. a rapid transition process is experienced from the agricultural sector to the sectors other than agriculture as a result of the structural change that the economy goes through. the share of the agricultural sector in total employment decreased from 38 percent in 2001 to 28 percent in september 2006. it is expected that the transition from the agricultural sector to the sectors other than agriculture within the process of structural change in our country will continue in the coming years additionally, high employment taxes observed in the sectoral structure of employment restricts the rise in employment on the one hand ; and causes employment to shift to unregistered activities on the other. the increase in the unregistered employment prevents the increases in employment to be permanent and increases volatility. working age population keeps growing due to the high rate of population growth in our country. the limited educational facilities to meet the labor power having the demanded qualifications vis - a - vis the increasing working age population and the lack of labor possessing the qualifications compatible with the structural change in the economy are the other problems detaining the possible improvements in the labor market. all these problems prevent the unemployment rates to fall in a speed parallel to the increase in employment. however, the problem of unemployment having social consequences besides economic ones renders the solution of this problem inevitable. therefore, long - term supply - side policies should be put into effect in order to find a permanent solution to the problem of unemployment. in this respect, via ensuring the implementation of active policies to create employment and providing resources for new investments, the investment atmosphere should be improved by strengthening the relationship between the real and the financial sector. additionally, educational policies oriented towards increasing the labor power compatible with the labor demand should be put into effect. besides, having the unregistered employment registered, should be given priority because it leads to unfair competition and this necessitates decreasing the taxes and other burdens on employment gradually. dear guests, finally, i wish to briefly mention current account deficit, which frequently occupies the agenda. current account deficit is one of the sensitive points of the turkish economy. with a retrospective look, we see that current account deficit grew faster in the periods when growth rate accelerated due to the structural peculiarities of the turkish economy. the periods when the current account deficit