Slide 3 of 5

Notes:

• The second chart shows movements in CPI inflation and GDP growth, measured quarterly as a percent change from the prior year.

• Looking from the 1970s forward, there are observable changes in GDP growth as the world oil price underwent dramatic change. The price shocks of 1973-74, the late 1970s/early 1980s, and early 1990's are all followed by first a decline in GDP growth and then a rebound.

• Some have suggested that other circumstances exacerbated these output losses, such as price controls and other Federal policies. Nonetheless, the pressure of energy prices on aggregate prices in the economy created adjustment problems for the economy as a whole.

• Current upward movements in the CPI are still moderated by the low level of core CPI inflation and worldwide competition in traded goods. If oil prices remain high, this will place continued pressure on prices of other commodities, in the United States and worldwide.

• If higher oil prices continue to put upward pressure on CPI inflation, historical patterns suggest a downward adjustment of economic activity.