Headline inflation, or the year-on-year change in the consumer price index (CPI), rose further to 4.1 percent in April 2004 from 3.8 percent in March, based on the 1994-based CPI series released by the National Statistics Office (NSO). Using new 2000-based CPI series— which measures the updated consumer basket of goods and services— the annual headline inflation was unchanged at 4.2 percent in April as in the previous month. The April inflation brought the year-to-date average headline inflation to 3.7 percent and 4.0 percent based on the 1994- and 2000-based CPI series, respectively. Meanwhile, core inflation, which excludes prices of volatile food and energy items such as rice, corn, fruits and vegetables, liquefied petroleum gas (LPG), kerosene and gasoline, was recorded at 4.3 percent based on the 1994 series (from 4.0 percent in March) and 4.7 percent based on the new 2000 series (from 4.6 percent).
The increase in headline inflation in April was due mainly to higher prices for food—particularly, meat, rice and milk—fuel products, and construction materials as well as the adjustment in transport fares. The increase in core inflation in April was associated also with higher prices of meat, selected construction materials and services, such as educational services.
The BSP notes that the slight uptrend in inflation as well as the potential risks to the inflation outlook emanate mainly from supply-side factors, such as the volatile price movements of food and energy items, increase in transport fares and possible adjustments in utility charges. The impact of these cost-side factors, however, is expected to be temporary in nature. In addition, these factors are not likely to pose a significant influence on the long run path of inflation. Moreover, the potential supply-oriented price pressures are likely to be muted by continued spare capacity in manufacturing and soft labor market conditions. Monetary authorities, therefore, believe that the long-term inflation expectations continue to be well contained.
Looking forward, the BSP believes that the headline inflation remains broadly on track with the Government’s target of 4-5 percent (based on the 1994-base year CPI) for 2004 and 2005. However, given the recent uptrend in inflation and risks to the inflation outlook, 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. Monetary policy, therefore, will continue to emphasize caution, aimed at heading off potential threat to price stability to support the economy’s growth objectives.