INFLATION  JUMPS  TO  6.6%  IN  JULY

MANILA, August 6 , 2004 (STAR) By Des Ferriols - Consumer prices rose sharply in July, rising to 6.6 percent from 5.4 percent in June on the back of a spike in global oil prices, the National Statistics Office (NSO) reported yesterday.

The latest inflation figure is estimated under a new system using 2000 as the base year. Under the old system, using 1994 as the base year, the annualized inflation rate in July would be six percent.

Analysts said the latest inflation figure was the fastest rate in 34 months and exceeds forecasts by economists and government.

Government officials said tight food supply and rising service costs coupled with the rising costs of oil prices brought the seven-month inflation average to 4.6 percent which is near the high end of the four to five percent range projected for the whole of 2004.

Analysts said the latest round of global increases in oil prices is threatening to drive up global interest rates and put the brakes on a global economic recovery.

Socioeconomic Planning Secretary Romulo Neri warned that record-high crude oil prices in the world market may force the government to adjust upward its inflation targets for this year and next.

"The worrisome part here is higher oil prices globally, and that could also have a major impact on the equation (government inflation target) for the rest of the year," Neri said.

"The sustained high level of oil and other commodities in the global market is expected to put pressure on inflation in the coming months with the probability of breaching the four to five percent mark, the high-end of the inflation target for 2004 and 2005," Neri said, citing 1994 base-year figures. He did not give estimates using 2000 as the base year.

Neri, however, admitted that there was very little the government could do outside of long-term intervention that would improve production in food and services.

"These are all supply-side factors that we are seeing, demand-side factors are mostly tame," he said. "This means that monetary tools will be useless and tightening would only by counter-productive."

President Arroyo’s economic advisers are to meet shortly to revisit the old target figures, Neri said.

"We will be reviewing it and we’ll see to what extent it has to be adjusted if ever," he said.

With petroleum prices rising, "transportation and communication prices (in July) increased 6.1 percent from the previous month as provincial transportation vehicle hiked fares, taking cues from a similar increase in (Manila) in the previous month," Neri said.

Consumer prices in Metro Manila went up to 6.4 percent in July from 5.5 percent in June. In the provinces, prices were more volatile, rising to 6.7 percent in July from 5.4 percent a month ago.

The government statistics office said there was a 10.8 percent increase in the cost of services.

Neri said the higher July figures were also partly influenced by supply disruptions caused by flooding on the southern island of Mindanao, the country’s breadbasket.

They affected the prices of corn, which is used for animal feeds, buffalo meat used for processed foods, and steel and tin products used in food industry packaging.

"We would like to see how food prices behave in (August) because food already comprises 40 percent of the expenditures of ordinary households," he said.

"So if food prices become more moderate, then inflation overall will be more moderate despite anticipated increases in oil prices."

Neri noted that the factors putting upward pressure on consumer prices in July "are basically supply-side inflation so therefore demand-side measures will be practically useless."

He said the government would have to work on the supply side of the equation, and "basically a more efficient transport and logistic system will help." –With Ted Torres, wires


Reported by: Sol Jose Vanzi

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