Introduction The global recovery has remained on track in the period since the previous Monetary Policy Review was published in October 2010, but a number of vulnerabilities continue to characterise the global economy. The unresolved European sovereign debt crisis, rising international commodity prices and the tragic events in Japan may moderate the pace of recovery in the near term. Global inflation risks have also increased, particularly in emerging-market economies, a number of which have tightened their monetary policy stance in recent months. Pressures from developments in international commodity markets are likely to pose an increasing risk to both the global and domestic inflation outlook. The acceleration in international oil prices that was evident in the latter part of 2010 in response to strong global demand has been reinforced by the geo-political events in the Middle East and North Africa (MENA), which have raised concerns about the security of oil supplies. In a number of mature economies the process of withdrawing fiscal stimulus continued, and the first step in raising interest rates from exceptional lows was taken when the European Central Bank (ECB) increased its key policy rate in April 2011.The domestic growth prognosis has improved, although growth remains below potential. The recovery in household consumption expenditure has been sustained and has been the main driver of growth, but growth in fixed capital formation has remained weak. At this stage there are no discernible inflationary pressures coming from the demand side of the economy, although the high, but moderating, level of real wage settlements and developments in food and commodity prices have been significant upside risks to the domestic inflation outlook. The main risks to the inflation outlook in this regard remain food and administered prices, and oil prices in particular. In addition, the potential exists for there to be adjustments in the exchange rate that would impact on the inflation outlook.This Monetary Policy Review analyses the latest developments in inflation and the factors that impact on it. It reviews recent monetary policy developments, and presents the outlook for inflation and the South African Reserve Bank’s (the Bank) inflation and growth forecasts. In addition, a number of topical issues are addressed in boxes. The first box considers what micro price data say about pricing conduct and how findings on pricing conduct from South Africa’s consumer price microdata compare to international stylised facts. The second box reports on research undertaken on the rand as a carry trade target, and the third on sovereign debt developments in the peripheral euro area.