Headline inflation rose to 6.4 percent year-on-year in March from 5.4 percent in February and 2.2 percent a year ago, bringing the year-to-date average to 5.6 percent. All major commodity groups, led by food, beverages and tobacco, posted higher inflation rates relative to the previous month. Month-on-month, headline inflation also accelerated to 0.9 percent in March from 0.3 percent in February. Core inflation, which measures the underlying trend in inflation by excluding specific food and energy items, likewise increased to 4.8 percent year-on-year in March from 4.0 percent in February.
Inflation pressures in March came mainly from elevated prices of food, including rice and corn. Price spikes were also recorded in fish, fruits and vegetables, meat, cereal preparations, dairy products, and miscellaneous food items. Transportation and communication and educational services, fuel, and rentals also contributed significantly to higher inflation. The rising cost of imported food products affected the domestic prices of rice, cereals, and dairy products. Base effects due to low price levels in 2007 contributed to high inflation rates for fish, fruits and vegetables, fuel, and rentals. Meanwhile, the increasing cost of feeds, partly affected by the higher cost of imported soybean meal, and tight supply, particularly of pork, led to higher meat prices. High global oil prices were directly reflected in the five rounds of increases in the domestic pump prices of gasoline products and diesel oil in March.
International prices of crude oil and agricultural products could remain high over the near term. However, there are offsetting factors. The relative firmness of the peso against the US dollar continues to cushion the impact of higher imported oil and food prices on domestic inflation. The consensus view of a prolonged slowdown in the US economy, and the resulting weaker outlook for global economic growth, may also reduce demand pressures, and therefore moderate price increases in global oil and non-oil commodities. The oil import tariff reduction scheme could also help alleviate inflationary pressures stemming from a possible continued surge in international crude oil prices.
The predominant policy concern of the BSP is to safeguard price stability, so that the ongoing economic expansion can be sustained. It will therefore be keenly on the lookout for factors that could spark inflation. As such, it will closely monitor price and economic developments, both domestic and global, and respond as warranted. It will also continue to provide strong support for non-monetary measures that are necessary to mitigate pressures from the supply side.