The weaker domestic demand was a result of declining real disposable incomes and employment, and negative wealth effects as a consequence of the significant decline in equity and house prices. The negative trend in consumption expenditure was reinforced by a significant deceleration in the growth of credit extension to the private sector.
This was in response to both lower demand for, and restricted supply of, credit as banks applied stricter lending criteria in view of the increasing number of impaired loans. Despite these factors that were generally conducive to a decline in the inflation rate, there were other pressures and risks to the upside. Administered prices continued to exert upward pressure on inflation.