If inflation expectations are firmly entrenched within the inflation target range, then very little response may be required from the monetary authorities, whose main objective under such circumstances would be to ensure that this process does not feed through to more generalised inflation pressures. The challenge, however, is that we are not being faced by a discrete once-off event.
Rather, we are facing what can best be described as a rolling or continuous shock. International oil prices have been on an upward trend since 2004, apart from some moderation in the latter half of 2006. Oil price increases have almost consistently surprised on the upside, requiring a continuous revision of our assumption and thus the forecasts.