In line with expectations, the year-on-year inflation increased to 3.3 percent in November 2003 from 3.1 percent registered in the previous month. The higher inflation in November was accounted for mainly by the increase in the prices of food, beverage and tobacco products as well as the upward adjustments in power rates and fuel prices. The November inflation was well within the BSP’s inflation forecast of 3.1-3.5 percent for the month. The year-to-date inflation reached 3.1 percent, reaffirming earlier expectations that average inflation for 2003 will fall significantly below the 4.5-5.5 percent target for the year.
For 2004, the BSP expects inflation to track broadly the 4.0-5.0 percent target for the year. This is based on moderate improvements in domestic demand and generally favorable outlook on food supply conditions going forward.
Looking beyond the near term, monetary authorities will continue to watch closely the evolving domestic and external developments as these could impact on the country’s inflation and growth path. In particular, emerging market concerns over domestic political conditions ahead of the May 2004 elections can influence the direction and movements of the exchange rate and other financial variables. These considerations underscore the need for monetary policy to stand continuously on guard against any possible threat to the price stability objective.