Year-on-year inflation rose to its highest during the year at 3.4 percent in June 2003 from 2.7 percent in the previous month and 2.9 percent a year earlier. The increase was due mainly to temporary supply disturbances caused by the last three typhoons which sharply raised food prices particularly fruits and vegetables, fish and meat. In addition, the adjustment in power rates contributed to the uptick in the June inflation. The June inflation brought the average inflation rate for the first semester of the year to 2.9 percent, still way below the official target of 4.5-5.5 percent for the whole year.
With expectations of generally normal weather conditions, supply-side pressures on inflation are likely to taper off for the rest of the year. These could also temper the flow-on effect of the recent rise in world oil prices on consumer prices. In addition, the continued modest—but improving—demand conditions are likely to exert muted influence on inflation. Both demand and supply indicators, therefore, reveal that increases in consumer prices are likely to reflect commodity-specific influences rather than broad-based pressures on the prices of goods and services.
The BSP’s latest 25 basis point-reduction in the policy rates is aimed at further stimulating economic activity rather than addressing transitory factors including the effect of weather disturbances. More time is required to allow this policy to work itself out in the market.
Going forward, the BSP will continue to provide a supportive monetary policy setting that would strengthen the growth process, while ensuring price stability.