MANILA, JULY 6, 2007
(STAR) By Des Ferriols - The nationwide inflation rate rose at a slower pace of 2.3 percent in June compared to 2.4 percent in May, the National Statistics Office (NSO), reported yesterday, easing pressure on the Bangko Sentral ng Pilipinas (BSP) to tighten monetary policy.

Lower inflation rates as recorded for food, beverages and tobacco, the largest component in the consumer price index basket, led to the more favorable June figure, the NSO said.

The BSP had earlier forecast an inflation range of 2.2 to 2.9 percent for the month.

For the first half of 2007, inflation averaged 2.6 percent, well below the government’s target of four to five percent.

BSP Governor Amando Tetangco Jr. said that the slower June increase “casts a benign outlook, being in the lower range of the central bank’s forecast.”

Month-on-month, CPI rose 0.6 percent after a 0.3 percent increase in May.

Core inflation, which excludes price volatile in some food and energy items, also eased to an annual 2.5 percent from 2.6 percent in May.

“The impact of higher world oil prices and ample liquidity were tempered by the positive effects of the strong peso and generally favorable food supply conditions,” Tetangco said.

“We will consider this, together with our initial assessment of the impact of the liquidity management measures implemented in May, in our policy meeting next week.”

Many economists expect the BSP to keep key interest rates unchanged at its July 12 policy meeting, given expectations that inflation will stay mild in the coming months and slower growth in domestic liquidity.

The expansion in domestic liquidity, or M3, eased to 21.1 percent in May from 26.3 percent in April.

“One month of slower M3 growth is unlikely to completely dispel the central bank’s concern over upward inflation risks. Still, the nascent reversal in liquidity growth should keep the central bank from having to consider further tightening for now,” said Lim Su Sian, an economist at Singapore-based DBS Bank.

The NSO data showed that two commodity groups recorded lower inflation rates compared to their rates in May. Food, beverages and tobacco (FBT) and miscellaneous items retained their previous month’s rates while housing and repairs (H&R) and services had higher rates.

The NSO said inflation rate in the National Capital Region (NCR) was slower at 1.9 percent in June from 2.1 percent in May. Lower annual increments in the prices of FBT, fuel, light and water (FLW) and services contributed to the downtrend.

On the other hand, the inflation rate in Areas Outside the National Capital Region (AONCR) was 2.6 percent in June, higher than the 2.5 percent recorded in May.

The BSP has already hinted that it would keep its policy settings because its inflation outlook was generally benign even with the tightening in world oil prices.

The Monetary Board (MB) is scheduled to meet on July 12 to discuss its monetary policy settings and the market has been speculating that monetary officials would recalibrate some of its policy tools.

Banks have been pushing for some adjustment in the key policy rates but central bank officials indicated that the BSP had the flexibility to keep its rates unchanged while also keeping the tiered rates on parked funds.

According to BSP Deputy Governor Diwa Guinigundo, the BSP had the flexibility to kept its policy settings unchanged especially after the US Federal Reserve Board decided to keep its own rates unchanged.

“We can say that we are neutral because the inflation outlook is essentially the same,” Guinigundo told reporters.

The BSP’s target inflation rate for 2007 was set at four to five percent and according to Guinigundo, even with the uptick in inflation rate, the average was still below the target range.

“Our position is that if we have more flexibility it means that the flexibility is to keep our policy rates and to keep the tiering system as is,” Guinigundo explained. “But your flexibility there must not deprive you of your ability to keep inflation at bay.” — With AFP

Chief News Editor: Sol Jose Vanzi

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