INFLATION  STEADY  AT  8.5%  IN  MAY

MANILA, June 8, 2005
 (STAR) By Des Ferriols - The nationwide inflation rate was steady at 8.5 percent in May, the same pace as in the previous three months, the National Statistics Office (NSO) reported yesterday.

The May figure, which was within government expectations, brought the average inflation rate for the first five months to 8.4 percent. The government is hoping to keep inflation between five percent to six percent this year.

The Bangko Sentral ng Pilipinas (BSP) said the May inflation was above target but well within its expected range of 8.2 percent to 8.6 percent and monetary officials said price movements did not indicate any need for a change in monetary policies.

The core inflation, on the other hand, actually decelerated from 7.8 percent in April to 7.6 percent in May. The core inflation represents the movements in the prices of goods excluding food items that are dependent on domestic agricultural production. In March, core inflation was recorded at eight percent.

BSP Deputy Governor Amando M. Tetangco Jr. said the deceleration in the month-on-month core inflation was an indication that domestic supply shocks remain the dominant driver of price pressures.

The BSP differentiates between headline and core inflation since monetary policies do not affect supply-related factors in price movements.

Therefore, monetary officials look at inflation based on whether real increase in demand is beginning to push prices up instead of declines in supply.

"Since price pressures are mainly driven by supply-related factors, this does not seem to indicate a need to change our monetary policy stance at this point," Tetangco said.

"But we will continue to monitor developments and their impact on our inflation outlook," Tetangco said.

Reports from the NSO indicated that prices in Metro Manila was calmer in May, with the average inflation going down to 8.6 percent from 8.9 percent in April.

In the provinces, inflation continued to be more benign than in Metro Manila, with the average inflation rate at 8.3 percent in May, down from 8.4 percent in April.

Excluding selected food and energy items, the NSO said the core inflation in the capital decelerated mainly due to the improved annual increases in the prices of food, beverages and tobacco. The same trend was recorded in areas outside the Metro.

The BSP has been able to keep its monetary policies steady since it raised its policy rates by 25 basis points earlier this year, saying that further tightening was not needed despite the continued rise in US interest rates.

The Monetary Board of the BSP last week decided to keep the rates at seven percent for overnight borrowing or reverse repurchase and 9.25 percent for overnight lending or repurchase rate.

In its first quarter inflation report, the BSP said the rise in inflation could put its 2006 inflation target at risk but future monetary action would be geared towards guiding inflationary expectations rather than attempting to dampen demand-side impulses.

"We still see a deceleration towards 2006 although we would continue to review the numbers depending on what action will be taken on the demand to increase wages and transport fares," Tetangco said.


Reported by: Sol Jose Vanzi

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