Vol. XXI, No. 218 [ Business World Online ]
Friday, June 6, 2008 | MANILA, PHILIPPINES
CONSUMER PRICES jumped to a nine-year high last month, brought about by rapid increases in fuel and food prices, the government yesterday said.
Headline inflation accelerated by 9.6% in May from 8.3% the previous month. The result, the highest since January 1999’s 10.5%, was at the high end of the central bank’s forecast of 8.8-9.6% for the month.
The result pulled the peso and share prices down (Full stories on S2/1-2). It prompted monetary authorities to adjust policy rates and admit that this year’s forecasts would likely be breached. (See main story above).
Prior to yesterday’s interest rate hike, the Bangko Sentral ng Pilipinas said inflation would likely to average between 7-9% by yearend.
Economists also said continued price increases should be expected for the rest of the year.
The five-month average was 6.9%, much higher than last year’s 2.7%. Core inflation, which excludes volatile products such as food and energy, rose to an annual rate of 6.2%.
In a memorandum to President Gloria Macapagal Arroyo, Acting Socioeconomic Planning Secretary Augusto B. Santos said 2008 inflation would most likely surpass the Development Budget Coordination Committee’s target of 3-5%.
He said inflation pressures were due to continuing price hikes in food, particularly rice and corn, and fuel.
"A total of five adjustments, amounting cumulatively to P4.50 per liter, were made during the month for gasoline, kerosene, and diesel. Meanwhile, the prices of LPG (liquefied petroleum gas) also increased only once, amounting to P0.94 per liter," he said.
"Dubai crude oil reached an average of $119.46 per barrel in May, 15.5% higher than the average in April." Mr. Santos said.
"This indicates that several adjustments in the domestic price of oil may happen in the coming months,"
The National Statistics Office said food prices were up 14.3% year on year. The cost of rice was 31.7% higher while corn prices grew 27.1%.
Economist and former Budget Secretary Benjamin E. Diokno said higher prices would prevail throughout the year.
"I think it will continue to be high; I won’t be surprised if I see a double-digit level sometime soon because if you look at the comparison from last year it’s pretty low."
Economist Joseph Y. Roxas of Eagle Equities agreed, saying "We all expected it to be high so while oil prices are going upwards, the dollar was also going up. It’s a double whammy."
"Last year was the other way around while oil prices were going up, the dollar was depreciating so it was balanced. This year both are going one way. Which is not good," Mr. Roxas added.
He noted that the dollar was up primarily because of expectations that the US Federal Reserve would no longer lower interest rates.
"The lowering cycle has ended, so the next move will be already to raise. They may have a few meetings of flat (no movement) and then the next one probably to raise already, which will strengthen the dollar."
Economist Cecilia P. Tanchoco of the Bank of the Philippine Islands also said consumer prices would be relatively elevated for the rest of the year.
"This is basically what is expected, so we’re looking at anywhere between our revised forecast of 8-8.6% for the year..."
Swiss financial firm UBS, meanwhile, adjusted its inflation forecast for the Philippines after consumer prices rose to a nine-year high last month.
It said inflation would likely rise by 8.0% this year from an earlier projection of 7.2%, with the 2009 figure at 4.8% from 4.4% previously.
"As everywhere, food and fuel played a role, but Philippines inflation accelerated in all major commodity groups. The latest ASEAN figures and prior months’ data, along with still elevated commodity prices point to elevated inflation outcomes in 2008 and 2009," it added.
UBS said the "elevated pace" of inflation increasingly requires a policy response.
"We have argued in previous notes that central banks across ASEAN will tighten monetary policy in coming months, with the Bangko Sentral ng Pilipinas and Bank Indonesia forecast to raise rates by at least 25 basis points.
"However, the degree of tightening we foresee varies with our view of the underlying inflation pressures, we see less tightening in Thailand and Malaysia than in Indonesia and the Philippines," it added. — Alria M. Ventanilla with a report from Ruby Anne M. Rubio
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