Inflation in August 2002 was recorded at 2.9 percent year-on-year. This was a slight increase from the 2.6 percent inflation rate registered in July, but was within the overall range of market expectations for the period. The uptick in August inflation was attributed to higher inflation rates for food and fuel items.
Overall, the inflation outturn for the first eight months of 2002 remains consistent with the BSP’s assessment of a generally benign inflation environment for the year. The year-to-date inflation rate of 3.3 percent is well below the government target of 4.5-5.5 percent for the year. Given moderate demand-pull inflationary pressures and favorable supply-side trends, monetary authorities believe that that average inflation for the whole year could be lower than the government’s target.
Monetary authorities expect a continued moderation in price movements for the rest of the year. However, inflationary headwinds could prevail over the policy horizon. The risks to the inflation and inflationary expectations relate to the uncertainty over the impact of El Niño weather phenomenon on agricultural crop production in 2003, a possible uptrend in world oil prices and expected adjustments in user charges on utilities. Such factors require the continued attention of monetary authorities to the risks that impinge on the inflation target.
The BSP believes that the current monetary policy stance is appropriately supportive of the economy’s growth objective while maintaining price stability. Going forward, the stance of monetary policy will continue to emphasize caution and focus on enabling past interest rate cuts to work their way through the economy. Thus, the BSP will continue to ensure sufficient liquidity for the requirements of the economy while guarding firmly against prospective risks to maintaining a low and stable inflation, supportive of the economy’s growth objective.