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February Inflation at 5.4 Percent


Headline inflation rose to 5.4 percent year-on-year in February from 4.9 percent in January, bringing the year-to-date average to 5.1 percent.  Except for fuel, light, and water, all major commodity groups registered higher inflation rates relative to the previous month. The February inflation rate was within the BSP’s forecast range for the month of 4.8-5.5 percent.  Month-on-month, headline inflation was lower in February at 0.3 percent compared to 1.2 percent in the previous month.  This suggests that the increase in year-on-year headline inflation was partly due to base effects because of low inflation levels in 2007.  Core inflation, which measures the underlying trend in inflation by excluding specific food and energy items, climbed to 4.0 percent year-on-year in February from 3.4 percent in January.

Inflation pressures in February came mainly from higher prices of rice, fruits and vegetables, fish, miscellaneous food, meat, rentals, transportation and communication services, fuel, educational services, dairy products, and cereal products.  Base effects due to low price levels in 2007 led to high inflation rates for fruits and vegetables and petroleum products despite price decreases month-on-month.  Meanwhile, the sustained elevated prices of imported wheat and skimmed milk powder affected the domestic prices of cereal and dairy products.  Tight supplies of rice, meat, fish, and cooking oil, among others, increased the prices of these products.            

The inflation outlook remains manageable over the two-year policy horizon.  Upside risks to inflation are expected to come mainly from volatile world oil prices and higher global commodity prices, including imported food, and from possible increases in electricity rates, transport fares, and wages.  Slower global economic activity could, however, moderate these price pressures as well as others emanating from the demand side.

The BSP continues to keep a close watch against any rekindling of inflationary pressures with the end in view of promoting price stability, which is integral to the consolidation of the macroeconomic gains that have been achieved.

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