The December 2001 inflation rate is expected to further dip to a 20-month low of 3.8% from 4.4% in November. This will bring the annual inflation rate average up to 6.0% from 4.4% a year ago. Lower food prices as evidenced by an official 9% quarterly growth estimate for agriculture is a major reason for the lower inflation forecast.

Furthermore, the drop in world crude prices since September 11 led to substantial cuts in domestic fuel prices - twice implemented in December at an average of P0.30 per liter. The average peso-dollar rate even appreciated by 0.4% in December to P51.79/US$ from P51.99/US$ in November.

The Bangko Sentral's December inflation target is high -- between 3.9% to 4.3%. A low inflation rate will provide monetary authorities room for further cuts in its overnight policy interest rates or for easing liquidity early this year.