The headline rate of inflation will remain under upward pressure during much of 2011 owing to a continued recovery in domestic demand and a sharp rise in global oil and food prices. Indeed, the year-on-year import inflation rate remained in double-digits in both December and January, while consumer price inflation averaged 4.3% year on year in January and February. As a result of this increase in price pressures, we have revised up our forecast rate of inflation for this year to 4.2%, from 3.6% previously. We expect inflation to remain under control in 2012-15, for three main reasons. First, the domestic and global economic recovery has reduced excess capacity in product markets, and South Korean manufacturers will thus continue to find it difficult to raise prices, owing to competition from other economies that make similar products for export. Second, the won is expected to strengthen against the US dollar in the forecast period relative to its value in the first half of 2009, helping to limit imported inflation. Third, global oil and non-oil prices are expected to fall from their current highs in the remainder of the period. We forecast that consumer price inflation will average 3.1% a year in 2012-15. Given the uncertainty that persists regarding the global economic outlook and thus also the prospects for South Korea's economy, real wages are expected to rise only slowly in 2011-15. However, risks to our inflation forecast remain on the upside: one particular concern is that political problems in Middle Eastern oil-exporting countries could yet result in a further increase in global oil prices.