After five months of overshooting the ceiling, inflation re-entered the 1-3% target range in April 2010, subsequently slowing to a three-year low of 1.8% in July and August before re-accelerating to 2.3% in November. The real exchange rate remains strong, helping to curb import costs. However, a sustained increase in housing prices, which have an impact on the consumer price index (CPI) via the rental component of the index, is a cause for concern. If both housing and the volatile fruit and vegetables components are excluded, the increase in the CPI over the past 12 months amounts to just 1.1%. It remains to be seen whether recent efforts by the authorities to slow the pace of house price rises-and, indirectly, rental prices-will be effective. In turn, this uncertainty poses an upside risk to our near-term inflation forecast (an annual average increase of 2.7% in 2011). After a forecast dip in price growth in 2012, accelerating growth and growing capacity constraints will push inflation back towards the top of the target range in 2013-15.