Upward Pressure on Consumer Prices and Wages

In tandem with the improving economy, job creation resumed in Q3 2009 after two quarters of net losses. Meanwhile, the CPI, which had fallen sharply in H1 2009 against the backdrop of lower global commodity prices and reduced business costs, turned around rapidly and rose over the next three quarters. This was due to elevated utility and fuel costs, as well as higher car prices (Chart 2). For the whole of 2009, CPI inflation came in at 0.6%.

Looking ahead, higher global commodity prices and elevated car prices are expected to continue pushing headline inflation up for the rest of 2010. At the same time, with the economy set to remain at relatively high levels of activity, rising business costs could put upward pressure on the prices of a wide range of goods and services. Thus, headline inflation is forecast to rise to between 2.5% and 3.5% in 2010.