Year-on-year inflation eased anew to 3.0 percent in August from 3.3 percent in the previous month. The deceleration was traced mainly to lower year-on-year inflation rates for food items, utilities, and services. The August inflation rate was well within the BSP’s inflation forecast of 2.8-3.1 percent for the month, and brought the average inflation to 3.0 percent for the first eight months of 2003. Month-on-month inflation was unchanged at 0.2 percent.
The overall assessment of conditions for future inflation and economic activity suggest a benign inflation environment over the policy horizon. Average annual inflation is expected to fall below the Government’s target of 4.5-5.5 percent in 2003 and settle within the range target of 4-5 percent in 2004. This is supported by steady though still moderate improvements in private spending and credit demand. In addition, farm output is expected to improve given better planting conditions in the second half. Meanwhile, despite the palpable impact of recent movements in international oil prices and bilateral exchange rates, the likely cost-push risks to aggregate consumer prices remain manageable, in part because the markets for international crude oil and foreign exchange have remained essentially stable.
Given the relative absence of significant inflation risks coupled with moderately improving economic activity, the BSP believes that current monetary policy stance is appropriately supportive of the economy’s growth objective without posing undue risks to price stability. The monetary stance going forward will continue to strike a balance between the need to sustain the ongoing monetary impetus to growth on one hand and the need to guard against excessive easing and potential price pressures on the other hand.