Introduction Inflation breached the upper end of the inflation target range of 3 to 6 per cent for the first time since August 2003 when a year-on-year increase of 6,3 per cent was recorded in April 2007. The pressures which were primarily responsible for the breach in the inflation target range were largely exogenous, emanating from oil and food price shocks, and have posed a challenge to many central banks around the world. However, given the potential impact on inflation expectations, more generalised price-setting behaviour and monetary policy credibility, the breach of the inflation target is of significant concern to the Monetary Policy Committee (MPC) of the South African Reserve Bank. The most important challenge for monetary policy-makers is to ensure that inflation is brought back to within the target range and that inflation expectations remain anchored within the range. The deterioration in the perceived medium to long-term risks to the inflation outlook have been noted by the MPC since its June 2006 meeting, when it began raising the repurchase (repo) rate in response to these risks. In the period since the previous Monetary Policy Review was published in May 2007, some of the key inflation risks have proved persistent, and there has been significant volatility and uncertainty in the international environment. However, there are some signs that the economy is responding to the changes which have been made to the monetary policy stance. As inflation reacts with a lag to these changes, the task of the MPC is to assess whether the observed inflation response at a particular point in time is consistent with the desired return to within the target range in future. This Monetary Policy Review provides an analysis of recent price developments, the factors that affect inflation and the outlook for inflation. In addition, three focus topics are presented in boxes. The first box sets out the key points contained in a recent discussion document published by Statistics South Africa on proposed changes to the South African consumer price index. The second considers the implications for monetary policy of the turmoil in financial markets that has arisen from spill-over effects of the subprime lending crisis in the United States (US), and the third box provides an international perspective on the impact of biofuels production on food prices.