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.
Nonetheless, a strong signal of inflation pressures building because of compensation increases markedly in excess of productivity gains has not yet clearly emerged in this expansion.