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Inflation Picks Up Slightly in July, But Target for the Year Remains Firmly in Sight


Year-on-year inflation rose slightly in July to 4.2 percent from 3.9 percent in June.  This brings the average inflation rate for the first seven months of the year to 3.6 percent, well below the government’s revised inflation target range of 5.0-6.0 percent for 2000.  The July inflation rate was also below the IMF program level of 5.4 percent in July. The low end of the BSP’s inflation forecast range of 4.2-4.5 percent for July predicted accurately the actual inflation rate.   

The higher inflation rate for July was due mainly to the increase in the average prices of food, beverage and tobacco  (FBT) as well as services. The inflation rate of FBT moved up from 1.8 percent in June to 2.2 percent in July; fuel light and water (FLW) from 9.5 percent to 10.1 percent; and miscellaneous items from 2.4 percent to 2.5 percent.  Higher FBT inflation developed as prices of all food items except corn and dairy products registered up trends.  Meanwhile, the rise in FLW inflation was driven mainly by the increase in the prices of domestic oil products which,  in turn, tracked the movements of imported oil prices.  On the other hand, the inflation rate for clothing and housing and repairs (H&R) fell from 2.4 percent and 4.6 percent to 2.3 percent and 4.3 percent, respectively.  

By contrast, month-on-month inflation fell marginally from 0.7 percent in June to 0.5 percent in July. The decline in the month-on-month inflation rate was triggered by the lower inflation rates of services (from 4.0 percent to 1.0 percent) and miscellaneous items (from 3.4 percent to 0.1 percent). On the other hand, the inflation rates of FBT and FLW rose to 0.3 percent and 1.2 percent from negative 0.3 percent and 0.6 percent, respectively. The inflation rates of clothing and H&R remained steady at their June levels of 0.1 percent and 0.2 percent, respectively.

 The relatively quiescent inflation environment in the first seven months of this year is expected to increase confidence in the attainment of the government’s target inflation range of 5.0-6.0 percent for 2000 and provides monetary authorities with greater flexibility in the conduct of monetary management.  The BSP remains firmly committed to maintaining price stability in the context of a broadly stable exchange rate while maintaining the necessary flexibility in the conduct of monetary policy to accommodate the demands of broad-based economic growth.   

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