Year-on-year headline inflation rose slightly to 3.0 percent in January from 2.9 percent in December, and was within the BSP’s monthly forecast of 2.5-3.4 percent for the month. The slightly higher inflation outturn was also at the low end of the Government’s inflation target range of 3-5 percent for 2013. Likewise, core inflation, which excludes certain food and energy items to measure generalized price pressures, increased to 3.6 percent from 3.3 percent in the previous month. Month-on-month headline inflation was higher at 0.5 percent from -0.1 percent in December.
The slightly higher headline inflation rate for January was traced mainly to higher food, electricity, and alcoholic beverages and tobacco prices. Tight domestic supply conditions, triggered by the recent weather-related production disruptions, led to higher prices of food, particularly fish, meat, and fruits. Likewise, the upward adjustment in electricity charges as a result of scheduled outages of some natural gas and coal-fired power plants contributed to the rise in inflation. The Sin Tax Reform Act of 2012, which became effective during the month, also pushed alcoholic beverages and tobacco inflation higher.
Governor Amando M. Tetangco, Jr. noted that the latest inflation reading continues to be consistent with the BSP’s view of a manageable inflation outlook over the policy horizon, with average inflation expected to settle within the lower half of the 3-5 percent target range. He also noted that while strong capital inflows and additional electricity rate adjustments continue to represent upside risks to the inflation outlook, these are counterbalanced by downside risks associated with the continued uncertainty over the strength of the global economy as well as the strengthening of the peso. He stressed that the BSP will continue to monitor emerging price and output developments to ensure that monetary policy settings remain consistent with price stability while being supportive of economic growth.