The forecasted headline inflation is lower than the 8.4 percent average for 2011, due to the strength of the kina, lower imported inflation, and stable international food and fuel prices. The kina is expected to remain strong through 2012, mainly due to high capital inflows and export receipts. While this has the effect of lowering inflation, it can adversely affect the traditional export sector.
On the other hand, firms must be fair in the conduct of their businesses by passing the benefit of kina appreciation through lower prices to consumers. Inflation in PNG’s major trading partners eased in the second half of 2011 and is expected to pass through to domestic inflation in 2012.