Year-on-year inflation slowed down further to 2.5 percent in November from the previous month’s 2.7 percent. The further deceleration in inflation was due to lower food inflation and the fairly stable non-food prices. The decline in the prices of fruits and vegetables and the modest deceleration in rice and corn inflation contributed to lower food inflation during the month. At 2.5 percent, the inflation rate in November marks the lowest since June 1987. The average inflation of 3.2 percent for the first eleven months of 2002 affirms earlier expectations of a quiescent inflation environment for the year.
The November inflation outturn supports the monetary authorities’ expectation of stable price movements going forward with a slight uptrend. However, average inflation in 2003 is likely to track broadly the government’s full-year target of 4.5-5.5 percent. The possible risks to the inflation outlook over the policy horizon arising from potential supply-side pressures—such as the El Niño weather phenomenon and the impact of the geopolitical factors on world oil prices—could be mitigated by weak demand-pull pressures owing to the continued presence of spare capacity in manufacturing, still weak demand for credit and the generally soft labor market conditions.
Given the expectations of subdued price movements but with some downside risks, the BSP believes that the current monetary policy stance continues to be appropriately supportive of the economy’s price stability and growth objectives. Going forward, the monetary authorities will monitor carefully the evolving market developments and allow past interest rate easing to work its way fully to the economy towards a low-inflation-growth path.