MANILA, APRIL 5, 2007 (STAR) By Des Ferriols - The national average inflation rate stood at 2.2 percent in March, the lowest rate in 20 years.

"This was the lowest inflation rate since April 1987, when it stood at one percent," the National Statistics Office (NSO) said yesterday.

The annual inflation rates for all sectors slowed in March except for clothing, NSO added.

The March inflation rate was well within the two to 2.6-percent rate forecast by the central bank earlier and was down from 2.6 percent in February.

In the same month last year, the inflation rate was 7.6 percent.

Consumer prices were 0.1 percent lower in March than in February because of decreases in the prices of food items such as fruit, fish, vegetables and meat.

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said the inflation outlook was "benign."

"Monetary policy will continue to be anticipatory, remaining focused on any variance between future inflation and the target," he said in a statement.

The continuing slowdown in inflation was due to the appreciation of the local currency and the relative stability of oil prices, said Jonathan Ravelas, a market strategist for Banco de Oro Universal Bank.

The March inflation rate "continues to support the benign inflation outlook of the central bank, along with stable interest rates amid excess liquidity," he said.

"It definitely gives the central bank more elbow room to consider cutting its key interest rates," he added.

The BSP said the inflation rate has fallen every month since March 2006 due mainly to the steady decline in oil prices as well as the appreciation of the peso against the dollar.

The BSP is expecting a slowdown in the inflation rate, earlier projecting the March level to drop further down to as low as two percent and no higher than the 2.6-percent inflation rate recorded in February.

Tetangco said the continuing decline in the inflation rate supported the benign inflation outlook of the Monetary Board which had managed to hold out any monetary policy action since it tiered the interest rates on bank placements last year.

"Monetary policy would continue to be anticipatory, remaining focused on any variance between future inflation and the target," Tetangco said.

Excluding selected food and energy items, the NSO said the core inflation rate further improved to 2.6 percent in March from three percent in February.

In the National Capital Region (NCR), the NSO said the inflation rate was lower at 2.1 percent in March from 2.4 percent in February. The agency attributed this to slower annual price increments in all the commodity groups except for food, beverages and tobacco (FBT).

Outside the capital, inflation rate was also slower at 2.3 percent in March, dropping from 2.7 percent in February as the annual increments in the indexes of all the commodity groups except for clothing slowed down.

Tetangco, however, said that the base effect from last year’s inflation rate was beginning to dissipate and this would have a taming effect on the slowdown in inflation rate for the remainder of the year.

The base effect was expected to keep the inflation rate low until around the end of the second quarter and to rise slightly towards the end of the year when compared to last year’s monthly inflation rates which started to drop in May.

Tetangco said that although domestic liquidity growth was likely to continue due to strong remittance inflows from overseas Filipino workers, the inflation rate would remain on track with the official target for 2007, despite galloping domestic liquidity. – With AFP

Chief News Editor: Sol Jose Vanzi

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