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Inflation Pressures Remain Low

05.04.2007

Price pressures remained low with headline inflation rising marginally in April to 2.3 percent from 2.2 percent in March. This brought the average inflation for the first four months of the year to 2.8 percent. The April inflation outturn was within the BSP’s forecast range of 2.0-2.7 percent and was sharply lower relative to the year-ago inflation of 7.1 percent. The modest uptick in price pressures was due largely to the faster increases in the indices for food, beverage and tobacco; fuel, light and water; and services. On a month-on-month basis, prices rose by 0.2 percent following the 0.1 percent price decline in March. Meanwhile, year-on-year core inflation was unchanged from the previous month’s level at 2.6 percent.

The near-term outlook for inflation remains essentially unchanged. The BSP believes that overall price trends continue to support an outlook of a generally benign inflation environment over the policy horizon. Demand-side pressures have remained manageable while supply-side pressures have continued to ease in recent months given stable food prices, good weather conditions, and the strengthening peso. In the absence of further adverse shocks, emerging forecasts by the BSP indicate that average inflation in 2007 may fall below the 4.0-5.0 percent target range while the 2008 inflation may settle at the low end of the 4.0±1.0 percent point target.

Going forward, the BSP will continue to keep a close watch over risks to the inflation outlook, particularly those coming from a sustained rapid growth in domestic liquidity.

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