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Inflation on the Downtrend in June


Year-on-year inflation slowed down slightly in June to 3.9 percent compared to 4.1 percent in May. This brings the average inflation rate for the first half of the year to 3.5 percent, well below the government’s revised inflation target range of 5.0-6.0 percent for 2000. The BSP welcomes this development and is pleased to note that the June 2000 inflation rate was significantly lower than the year-ago inflation rate of 5.7 percent.

The relatively moderate inflation for June was due primarily to the slowdown in the inflation rates for services and food.  Contributing to this favorable development was the drop in prices of food items in metro manila, particularly rice, fish, fruits and vegetables, with year-on-year inflation rate of food, beverage and tobacco (FBT) at 1.8 percent in June from 2.0 percent a month earlier.  In addition, year-on-year inflation in services slowed down to 10.0 percent this month from 11.2 percent in the previous month following the deceleration in the rate of tuition fee increases. Other categories that registered slower acceleration in prices were:  clothing, with year-on-year inflation dropping to 2.4 percent in June from 2.5 percent in may; as well as housing and repairs (H&R), with price increases limited to 4.6 percent from 6.1 percent. By contrast, the year-on-year inflation rate of fuel, light and water (FLW) rose to 9.5 percent in June from 9.3 percent in may following the upward adjustments in the prices of gasoline, diesel and engine oil, along with miscellaneous items, which registered an inflation rate of 2.4 percent from negative 0.7 percent.

 The month-on-month inflation rate, however, was slightly higher in June at 0.7 percent compared to 0.4 percent in the previous month.  Month-on-month inflation rates for FLW inched up to 0.6 percent in June from negative 0.2 percent in may; services to 3.8 percent from 0.1 percent, and miscellaneous items to 3.4 percent from 0.3 percent. By contrast, slower month-on-month inflation rates were observed for clothing to 0.1 percent from 0.2 percent, and FBT to negative 0.3 percent from 0.7 percent.  Meanwhile, prices in the H&R sector were held steady at 0.3 percent from the previous month. 

The relatively subdued inflation environment during the first half of this year provides monetary authorities with a greater margin of flexibility in monetary management. The June inflation rate is slightly higher than the BSP’s forecast of 3.5-3.7 percent for June. The BSP intends to preserve these gains in the inflation front in the context of a broadly stable exchange rate while maintaining the necessary flexibility in the conduct of monetary policy in order to allow sustainable and broad-based economic growth. 

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