Philippines May inflation remains low at 2.4%

Jun. 05, 2007

MANILA — Headline inflation in May slightly rose to 2.4 percent from 2.3 percent in April, bringing the average inflation for the first five months of the year to 2.7 percent. The May inflation was within the 2.1-2.8 percent forecast range of Bangko Sentral ng Pilipinas (BSP) and was substantially lower than the 6.9 percent inflation rate posted a year ago. The minimal increase in inflation was mainly attributable to the uptick in the prices of fuel, light, and water to 4.0 percent from 2.2 percent in April. Month-on-month, inflation went up by 0.3 percent following the 0.2 percent increase in April. Meanwhile, core inflation, which excludes volatile food and energy items, remained steady at 2.6 percent for the third consecutive month.

Baseline forecasts continue to point to a benign inflation environment for the rest of the year. While demand-side indicators show a broad but moderate upward trend, easing supply-side indicatorsdue largely to stable food prices and the continued strengthening of the pesoprovide offsetting influences, leading to sedate price pressures in the near term.

However, risks to future inflation remain. The volatility in oil prices and the possibility of additional wage adjustments provide upside risks to the inflation outlook. Domestic liquidity has posted strong growth in the past several months, and could pose a risk if it persists down the road. The impact of past monetary actions is expected to moderate this liquidity trend.

Going forward, the BSP will continue to be closely attentive to risks to inflation to ensure that the monetary policy stance remains consistent with price stability.

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