The Reserve Bank of Fiji said the domestic economy is forecast to recover modestly in 2010 following a contraction last year.

Consumption activity picked up in the first month of this year based on net VAT collections registering an annual increase of 17.2 percent while commercial banks lending for consumption purposes rose by 3.1 percent in the year to February.

Spending is also being supported by rising incomes, as indicated by the growth of 5.9 percent in PAYE collections.

Lending for investment purposes grew by 3 percent on an annual basis in February, suggesting some investment activity.

Sectoral performances so far, however, remain mixed.

The RBF said the latest production data shows a 7.9 percent increase in electricity production in the first two months of this year, when compared to the same period last year.

Visitor arrivals also picked up in February, registering a 25.1 percent annual growth from the 2009 level.

Gold production has also gain momentum, according to the RBF, as the Vatukoula mine produced around 10,000 ounces in the first two months of the year.

On the contrary, copra production declined by almost 20 percent in January, despite a slight increase in the mill gate price.

Inflation rose to 8.1 percent in February from 6.3 percent in January, and 1.9 percent a year ago.

Since the devaluation in April, prices have risen by 8.5 percent.

The current year end inflation is forecast as 2 percent but this is expected to be revised upward in light of the impact of Cyclone Tomas on prices of market items.

The planned removal of price controls on certain basket items, the weakening of the Fiji dollar against the Yen, Australian and US dollars, higher oil prices and the expected recovery in the domestic sector are expected to add price pressures in the next few months.