The Development Budget Coordination Committee (DBCC), the Government’s inter-agency economic planning body, under DBCC Resolution No. 2012-2 dated 22 February 2012, approved the retention of the inflation target of 4 ± 1 percent for 2012-2014. Under the BSP’s inflation targeting framework for monetary policy, the targets for inflation are set by the National Government through the DBCC in consultation with the BSP.
The review of the inflation target was prompted by the NSO’s shift to the new 2006-based CPI series. The review was deemed necessary to take into account possible significant differences in the statistical properties between the old and new series and any major structural changes that are reflected in the new index that could influence the achievement of the inflation target.
The decision to maintain the inflation target was based on two key considerations. Firstly, analysis of available data showed that the old 2000-based CPI and the new 2006-based CPI series are not statistically different from each other and that there appeared to be no significant upward bias in the new CPI series. Secondly, the inflation target represents the desired long-range inflation level and should be maintained to serve as an anchor for the public’s expectations about future inflation, thereby allowing them to formulate their investment, consumption, as well as saving decisions with greater certainty.
The announcement of the inflation target set by the Government forms part of the inflation targeting framework, under which the BSP commits to achieve the inflation target over a three-year period. In its latest assessment of the inflation environment, the BSP’s baseline forecasts indicated that average inflation is expected to remain within the target range in 2012-2013, supported by well-anchored inflation expectations. The BSP remains fully committed to achieving the Government’s inflation target that is expected to help provide the macroeconomic environment conducive to a balanced and sustainable growth.