Manila, July 5, 2003 By Des Ferriols (Star) Higher June inflation of 3.4% surprises experts.

Consumer prices rose unexpectedly to 3.4 percent in June, from 2.7 percent in May, as prices of vital consumer items like food, beverages, clothing and fuel went up considerably, the National Statistics Office (NSO) reported yesterday.

Economists were caught by surprise. They had forecast that the inflation rate in June would range from 2.6 percent to three percent, taking into account the weakness of the local currency, damage from storms and seasonal pressure.

The government statistics office said the latest figure brought the average inflation rate for the first half of the year to 2.9 percent.

Floods and damage caused by typhoons which hit the country in late May and July, raised the prices of vegetables, fruits and fish, the NSO said.

It also reported that clothing was costlier as parents got ready for the new school year in June. Fuel, light and water were more expensive after the Manila Electric Co. (Meralco), the biggest power distributor, raised rates.

"Higher prices of clothing, selected construction materials, medicines and selected school supplies along with tuition fee hikes posted in many regions also contributed to the upward trend," the NSO said.

The June inflation rate was a surprise to the Bangko Sentral ng Pilipinas (BSP) and the National Economic and Higher June.

Development Authority (NEDA) which both predicted that the rate would be somewhere between 2.6 percent and three percent despite the typhoons.

"It’s quite a surprise but there is a logical explanation," BSP Governor Rafael Buenaventura said. "What was not factored in was the impact of the three typhoons that caused some disruption in the flow of supply to the urban centers," he added.

However, Buenaventura said the BSP considered the June inflation as a "one-time blip" that would have no bearing on the full year projection. "We’re still looking at an inflation rate below three percent for the rest of the year," he said.

"This blip at this time won’t affect our full-year expectations but if we continue to see many blips, then that’s another thing," Buenaventura said.

Buenaventura added that the power rate hike also had a domino effect on domestic prices, a factor that would have been mitigated by the seasonal movements in the prices of other commodities had it not been for the disruption in supply caused by the typhoons.

Socio-Economic Planning Secretary Romulo Neri said that despite the rise in prices in June, "the government remains on track in meeting its 4.5 percent to 5.5 percent (average inflation rate) forecast for the year."

By area, consumer prices for the highly urbanized Metro Manila hit 4.5 percent in June from only 2.5 percent in May while the rate for the largely-rural areas outside the capital stood at three percent.

Some analysts said more intense economic activity in the second half – as manufacturing perks up to meet higher demand from recovering overseas markets – may fuel price pressures.

"It (inflation) is going to go up to four percent by year end, the reason being oil prices are slowly picking up," Jose Vistan, an economist from AB Capital Securities said. "Another reason is the improvement in business confidence."

The government has set an inflation rate target of 4.5 percent to 5.5 percent this year after the 3.1 percent rise in prices in 2002.

But the NEDA has said the rate may come in at a narrower three percent to 3.5 percent.

Reported by: Sol Jose Vanzi

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