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Rising Inflationary Pressures in Faster-growing Economies

In 2009, falling commodity prices and tepid demand resulted in consumer price index (CPI) inflation declining in Q2 and Q3 in the G3 and Asia ex-Japan economies. In particular, consumer prices in Japan fell for five consecutive quarters from the beginning of 2009. In contrast, consumer prices in the US and Eurozone have now begun to rise, although core inflation remains muted given the prevalence of excess capacity in these economies.

With demand recovering more rapidly in Asia ex-Japan, consumer prices in the region have risen more quickly than in the G3, averaging 1.7% in Q4 2009 and Q1 2010 as compared to 0.9% for the latter. Consequently, regional central banks have begun to tighten monetary policy to temper inflationary pressures and curb the build-up of financial imbalances.