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September Inflation Slows Down Further to 2.9 Percent

10.06.2003

Year-on-year inflation slowed down anew to 2.9 percent in September from 3.0 percent in the previous month.  The deceleration was traced mainly to lower year-on-year inflation rates for food items including rice, fruits and vegetables.  The September inflation rate was well within the BSP’s inflation forecast of 2.7-3.1 percent for the month.  This brings the year-to-date average inflation rate to 3.0 percent.  Meanwhile,  month-on-month inflation also decelerated to 0.1 percent in September from 0.2 percent in August.

A benign inflation environment is expected to prevail over the near term based on the BSP’s assessment of conditions for future inflation and economic activity.  Actual average inflation for the year is likely to fall below the Government’s target of 4.5-5.5 percent while the 2004 inflation will be within the 4-5 percent target.  The steady-though-still moderate improvements in private spending and credit demand support a favorable inflation outlook.   Supply-side factors are expected to exert only a moderate influence on prices going forward.  Specifically, food prices are expected to remain stable given improving weather condition and importation.

Despite the overall benign price conditions, it is necessary to closely watch the potential risk in the form of adverse cost-side developments such as the possible rise in international oil prices during the winter season and movements in the foreign exchange market, which could have a bearing on public expectations about future prices.  The current monetary policy stance, therefore, remains appropriately supportive of the economy’s growth objective.  At the same time, it is sufficiently cautious to guard against any renewed price pressure that may emerge over the near-term.

Going forward, the BSP will continue to strengthen its focus on maintaining price stability as the overriding thrust of monetary policy while preserving the ongoing impetus to growth.

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