Year-on-year inflation in March 2003 slowed down to 2.9 percent from 3.1 percent in the previous month and the 3.6 percent registered a year ago. The lower annual inflation rates for food items such as fruits and vegetables, eggs and meat contributed largely to the deceleration in inflation in March. Lower prices were also recorded for fish and corn. These factors cushioned the price increases of fuel, light and water as well as services due to the increases in the prices of gasoline and related products such as liquefied petroleum gas (LPG) and kerosene. The March inflation brings the first quarter average inflation to 2.9 percent.
Supply-side factors, comprising mainly of food items and fuel products continued to be the major sources of transitory inflationary pressures. The absence of broad-based price movements also indicates the lack of generalized demand pressures on inflation. While there are some improvements in domestic demand such as the observed recovery in bank lending and some gains in manufacturing output, the overall demand conditions remain consistent with a generally benign inflation setting. Current price trends, therefore, support the BSP’s expectations of a generally subdued inflation environment.
Based on these factors and given indications that the risks to the inflation outlook posed by the threat of the El Niño weather phenomenon appears to be weakening, the surge in oil prices observed in the previous months have abated and that the exchange rate has stabilized, the BSP believes that the average inflation in 2003 will likely settle within the government’s full-year target of 4.5–5.5 percent.
In the light of these developments in the domestic economy, combined with the prospects for a slower pace in global economic recovery, monetary policy will continue to provide a supportive environment, aimed at allowing an appropriate level of liquidity consistent with the economy’s growth requirements. At the same time, the BSP will continue to keep an eye on the possible risks to the inflation outlook.