Headline inflation or the year-on-year change in the consumer price index (CPI) rose to 4.5 percent in May 2004 from 4.1 percent in the previous month, based on the 1994-based CPI series released by the National Statistics Office (NSO). Likewise, the new 2000-based CPI series—which was derived from an updated consumer basket of goods and services—showed an increase in prices to 4.7 percent from 4.2 percent in March and April. The May inflation brought the year-to-date average headline inflation to 3.8 percent using the 1994 basket and 4.1 percent using the 2000 basket. At 3.8 percent (1994=100), average inflation remains below the 4-5 percent target for the year.
Meanwhile, core inflation (headline inflation less prices of volatile food and energy items such as rice, corn, fruits and vegetables, liquefied petroleum gas (LPG), kerosene and gasoline) increased also to 4.7 percent (1994=100) in May from 4.3 percent in April and 5.2 percent (2000=100) from 4.7 percent in the previous month.
The uptick in the headline inflation in May was mainly due to higher prices of food items, particularly, meat, fruits, vegetables, dairy products and cooking oil which exerted the most pressure on headline inflation.
The BSP noted that the uptrend in inflation in recent months was driven mainly by supply-side factors such as the rise in the prices of food products, increase in the domestic pump prices of gasoline and other oil products and the adjustments in transport fares. In addition, possible adjustments in utilities charges could exert further pressures on inflation. The impact of these supply-side factors, however, is expected to be transitory and does not appear to represent a permanent shift in the long-run price path. These risks are for the most part, outside the influence of monetary policy. In addition, the potential supply-oriented price pressures are likely to be tempered by continued presence of spare capacity in the manufacturing sector and soft labor market conditions. The pending petitions for wage adjustments could also raise inflation expectations. Meanwhile, timely importation of food products such as chicken and corn could help ease the pressures on food prices.
Given these developments, the BSP will continue to monitor closely the evolving economic and financial developments as well as assess their impact on the long-run price path. The stance of monetary policy will continue to emphasize caution in line with the need to provide support to economic activity and ensure sustainable growth while maintaining price stability.