Year-on-year inflation was lower than expected in October 2002 at 2.7 percent compared to 2.9 percent a month earlier. The deceleration was traced to a decline in inflation rates for food, beverages and tobacco (FBT) and housing and repairs. The average inflation rate of 3.2 percent for the first ten months of 2002 remains consistent with the BSP’s assessment of a benign inflation environment for the remainder of the year.
The subdued inflation outturn strengthens monetary authorities’ expectations of a manageable inflation environment over the policy horizon despite the presence of some upside risks to consumer prices. Average inflation in 2003 is expected to trend mildly upward but should broadly track the government’s full-year target of 4.5-5.5 percent, with cost-side pressures being mitigated by restrained demand conditions.
Against a backdrop of benign future inflation, the BSP believes that the current monetary policy stance remains appropriately supportive of the economy’s growth objective while guarding firmly against price pressures. Over the policy horizon, the monetary stance of the BSP will continue to emphasize caution and monitor carefully the risks to stable prices and sustained economic activity.