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Inflation Decelerates Further to 5.7 Percent in September


Headline inflation decelerated to its lowest level since June 2004 at 5.7 percent in September, as all commodity groups except clothing registered lower inflation rates.  The September inflation outturn was at the low-end of the BSP’s forecast range of 5.7-6.4 percent and brought the year-to-date average headline inflation rate to 6.8 percent. The easing of oil and food prices and the strengthening of the peso during the month contributed to the further deceleration in inflation. On a month-on-month basis, prices declined in September as shown by the negative inflation rate of 0.1 percent. This was traced mainly to lower prices of gasoline and diesel, and heavily weighted food items such as vegetables, seafoods, chicken and pork.  
Similarly, core inflation slowed to 5.0 percent from 5.3 percent in August, bringing the average core inflation rate for the first nine months to 5.8 percent.  

The inflation data for September strengthen the BSP’s view of a continued deceleration in inflation for the rest of 2006. The continued decline in world oil prices and the appreciation of the peso in recent weeks are likely to contribute further to easing of domestic oil prices. Moreover, uneven improvements in demand indicators, particularly bank lending, remain suggestive of limited demand-based pressures on inflation.  On this basis, the BSP continues to expect average inflation for 2007 to settle within the Government’s 4-5 percent target in the absence of further adverse shocks.

Nonetheless, the BSP remains watchful of potential shifts in the public’s inflation expectations and second-round effects on price- and wage-setting behavior.  It will also continue to closely monitor liquidity conditions in view of their potential impact on inflation.     

Overall, the stance of monetary policy remains geared toward ensuring price stability in the medium term while remaining broadly supportive of the economy’s growth objective.

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