The recent decline in inflation has been supported by the disappearance of the effect from last year’s tax increases and fading pressures from agricultural prices, along with lower key telecoms and electricity prices. The better inflation performance must be maintained.
Upside risks include more significant pass-through from a weaker peso down the road, as well as the resurgence of spikes in noncore inflation prices and eventual aggregate demand pressures. Close monitoring of these risks is all-important in view of the fact that analysts’ long-term inflation expectations remain above the 3 percent target. Sustained convergence with the target must be consolidated.