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Inflation Rate Slows Down to 2.7 Percent in May 2003

06.05.2003

Year-on-year inflation fell to 2.7 percent in May 2003 from 2.8 percent in the previous month and 3.6 percent a year earlier. The slowdown reflects the generally muted demand-pull pressures on consumer prices as well as positive supply-side factors such as the recent decline in fuel prices. Average inflation rate for the first five months of 2003 is 2.8 percent, lower than the 3.6 percent average inflation for the same period a year ago.

Expectations of continued mild demand pressures and receding supply-side influences on consumer prices point to a benign inflation setting for the near future. Continuing mixed trends in aggregate demand conditions suggest that increases in consumer prices are likely to reflect commodity-specific influences rather than broad-based pressures on the prices of goods and services. At the same time, the recent abatement of supply-side inflationary risks from the El Niño phenomenon and movements in international oil prices serves as an added positive influence on the inflation outlook. Thus, the BSP expects average inflation in 2003 to be between 2.6 percent to 3.0 percent, significantly lower than the inflation target of 4.5-5.5 percent, based on the latest economic and financial developments.

The advent of a benign inflation environment going forward provides added flexibility for monetary authorities to ease monetary policy and ensure appropriate level of liquidity to support the momentum for sustained economic growth.

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