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Inflation Rate Lower Than Expected in January

02.07.2000

“We are pleased to note that the inflation rate in January turned out to be lower than expected—the lowest recorded since may 1987 when it settled at 2.0 percent. At 2.6 percent, the January inflation rate was much lower than the previous month’s 4.3 percent, the BSP’s projection of between 2.9-3.3 percent for the month, and its 6.0-7.0 percent inflation target range for 2000.”

“The lower-than-expected January inflation rate was on account of the decline in the inflation rates of all items except fuel, light, and water given the high base in January 1999 of 11.5 percent, the highest recorded since December 1991. The inflation rate of food, beverages and tobacco (FBT) fell to negative 1.0 percent from 0.6 percent in December; clothing to 2.7 percent from 4.9 percent; housing and repairs (H&R) to 7.2 percent from 8.8 percent; services to 11.5 percent from 12.5 percent; and miscellaneous items to negative 0.3 percent from 3.8 percent. On the other hand, the inflation rate of fuel, light and water (FLW) accelerated to 8.4 percent from 8.2 percent in December. Average prices of rice, dairy products, eggs, fish, fruits and vegetables, and meat were lower compared to their levels in December. However, higher prices were recorded for corn, cereal preparations, and miscellaneous foods compared to their December levels.”

“Meanwhile, the month-on-month inflation rate in January accelerated to 0.5 percent from 0.1 percent in the previous month. In particular, FBT inflation picked up to 0.9 percent from zero growth in December; H&R to 0.6 percent from 0.3 percent; and FLW to 0.4 percent from 0.2 percent.”

“The inflation rate in January was substantially lower compared to the BSP’s inflation objective, and hence, continues to provide the monetary authorities greater flexibility in monetary management. Despite the notable gains in the inflation front, the BSP will continue to be watchful of external developments that may affect the foreign exchange market. In particular, the BSP may need to review its interest rate policy should the recent hikes in foreign interest rates exert pressures on the exchange rate.”   

"The inflation outlook for the rest of the year remains favorable as the average inflation rate for 2000 is expected to be close to the low end of the 6.0-7.0 percent inflation target range.”

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