The earthquake and tsunami are expected to exert upward pressure on prices in 2011 owing to a number of supply-side problems, but the risk of widespread profiteering (amid the ongoing shortages following the catastrophe) is minimal in Japan's well-ordered society. We have revised up our forecast for consumer price inflation in 2011 to 0.7%, from 0.6% previously, owing to supply-side factors (including a loss of agricultural output amid concerns over nuclear contamination in north-east Japan) but this does not imply any fundamental change in Japan's deflationary environment. The upward pressure on domestic prices in 2011 will be partly counteracted by the continued strength of the yen. In 2012-15 economic growth (albeit modest) and the resultant narrowing of the output gap will cause consumer price inflation to average 0.9% a year.