Annual average inflation rose to 7.1% in 2010 from 1.7% in 2009. The ongoing recovery in domestic demand growth, as well as an increase in global commodity prices, resulted in a return of inflationary pressures in 2010. Consumer prices rose sharply in the final months of 2010 owing to a sharp upward trend in food prices. Higher global prices for soft commodities (particularly cereals and sugar), along with the increase in global oil prices, have been the main factor behind recent consumer price increases in Georgia. The authorities target an annual inflation rate of 6% for 2011-12. However, we forecast an annual average inflation rate of 8.4% in 2011, owing to higher food and oil prices in the first half of 2011, as well as the ongoing recovery in domestic demand. Inflationary pressures will remain prevalent in 2012; however, lower commodity prices will reduce annual average inflation to a forecast 5%.