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2007 Inflation Averages 2.8 Percent

01.08.2008

With headline inflation for December 2007 inching up to 3.9 percent from 3.2 percent in the previous month, inflation averaged 2.8 percent for the whole year of 2007.  This is well below the 4.0-5.0 percent target range for 2007 and the lowest annual average in 21 years.  Meanwhile, the month-on-month headline inflation rose by 0.8 percent in December compared to 0.6 percent in November. Core inflation, a measure of price pressures that excludes certain food and energy items, rose to 2.6 percent from 2.3 percent during the same period.

Inflation pressures in December were traced mainly to supply shocks including increases in the prices of food, fuel, light and water, and energy-related services. All major food items, particularly rice, milk and milk products, eggs, fruits and vegetables, posted higher inflation.  Price increases in gasoline products, diesel, and LPG and other fuel items in most regions, along with higher electricity rates in selected regions, including the National Capital Region, accounted for the uptick in the inflation rates of fuel, light and water, and transportation and communication services.
 
While demand indicators showed some firming trend, domestic liquidity growth continued to slow down. Upside risks to inflation—among them a possible recurrence of high liquidity growth from sustained strong foreign exchange inflows, possible additional wage and transport fare increases, and high and volatile prices of world crude oil and other non-oil commodities—persist, but remain manageable. Moreover, the continuing firmness of the peso against the US dollar provides additional stability to import costs. As a result, headline inflation is expected to be within the 4.0 percent ± 1.0 percentage point target for 2008 and the 3.5 percent  ± 1.0 percentage point target for 2009.

The BSP is closely monitoring developments that pose upside risks to the inflation outlook, including emerging trends in global commodity prices, to ensure that the monetary policy stance remains consistent with the economy’s  momentum for sustained non-inflationary growth.   

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