Inflation in March decelerated to 2.2 percent from 2.6 percent in February. At this level, inflation was the same as in January 2000, and the lowest since April 1987. Slower price increases for all commodity groups except clothing brought the average inflation for the first quarter 2007 to 2.9 percent, significantly lower than the 7.3 percent recorded in the same period a year ago. The March inflation outturn was within the BSP’s forecast range of 2.0-2.6 percent. Ample supply of major food items, the dropping out of the base effect of the RVAT on the CPI, and the general strength of the peso contributed to the continued downtrend in inflation. Month-on-month, prices declined anew by 0.1 percent in March, due mainly to lower prices of fish, fruits and vegetables, and meat. Core inflation also sustained its downtrend, registering a 0.4 percentage drop to 2.6 percent year-on-year from 3.0 percent in the previous month.
These developments are consistent with the BSP’s expectation of a generally benign inflation outlook over the policy horizon. This outlook is also supported by moderate demand pressures and well-contained inflation expectations. Barring unforeseen external and domestic shocks, average inflation rates for 2007 and 2008 are expected to fall within the Government’s target range of 4.0-5.0 percent and 4.0 percent ± 1 percentage point, respectively.
Despite the current low-inflation environment, the BSP will continue to be watchful of potential upside pressures to the inflation outlook, particularly those coming from the volatility in world oil prices and the continued strong growth in domestic liquidity. This will ensure that the monetary policy stance remains consistent with the Government’s price and growth objectives.