JULY INFLATION SLOWS DOWN TO 3.3% FROM 3.4% IN JUNE

Manila, August 6, 2003 (MALAYA) Inflation in July fell to 3.3 percent from 3.4 percent last June giving monetary authorities the elbow room to keep interest rates low despite a weakening peso.

Analysts, however, estimate that this month's inflation can be higher after a strong typhoon in late July heavily damaged the country's corn crops.

Agriculture Secretary Luis Lorenzo had estimated that crop damage can reach as high as P1 billion.

The National Statistics Office said last month's lower increase in prices was largely a result of lower increase in food prices.

Bangko Sentral ng Pilipinas Governor Rafael Buenaventura said July's low inflation rate proved the monetary authorities were right in keeping interest rates low to spur economic growth, a view shared by economists.

"It would take a very significant blip in consumer prices to detract from the central bank's current relatively accommodative monetary policy," said Song Seng Wun, a regional economist at G.K. Goh Securities in Singapore.

Prices in July were just 0.1 percent higher than in June, when they jumped 0.9 percent on the month.

Socio-economic Planning Secretary Romulo Neri said average month-on-month inflation rate was likely to increase slightly in the coming months because of the peso's fall, which will increase the cost of imported goods.

But Neri said in a statement that inflation this year should average between 3.0 percent and 3.5 percent, well below the government's target of 4.5 percent to 5.5 percent and straddling last year's average of 3.1 percent.

The peso fell to four-month lows against the dollar in the wake of a failed mutiny by renegade soldiers on July 27, which the government says was the front-end of an abortive coup.

The peso has stabilized this week.

But Song said: "If political uncertainty and tension continues, it poses a further risk to the exchange rate and that raises the potential for imported inflation, though I see that as a small factor.

"It could feed through into agricultural input products like fertilizers and oil."

Because the inflation survey usually covers the first three weeks of a given month, economists said yesterday's report would not have reflected the havoc caused by the late-July typhoon.

"August may move up again as we are likely to see some impact from the disruption to food supply from the typhoon in late July," said Cecilia Tanchoco, an economist at BPI Securities Inc.


Reported by: Sol Jose Vanzi

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