(STAR) By Ma. Elisa P. Osorio - The price of pandesal, the breakfast staple of many Filipino families, will increase by P0.50 as a result of higher flour prices, the Philippine Federation of Bakers Association Inc. (PFBAI) said.

Pandesal, which was previously priced at P2 a piece will now cost P2.50.

The price of loaf bread will likewise increase by five percent to P52 per 600 grams by mid-December.

Bakers said they are forced to raise their prices after the price of flour has gone up by 45 percent from P580 per 25-kilogram bag in July to P840 this month. Flour represents 55 to 65 percent of the baker’s production cost.

“We have been appealing to the flour millers not to increase their prices this December but we’re told that their cost of imported wheat has gone up due to global price increases,” Marcos Ong, president of the Filipino-Chinese Bakers Association Inc. (FCBAI) said.

In fact, he said the entire baking industry has been suffering for half a year now because of wheat and flour prices.

“We are no longer capable of tightening our belts any further, lest we need to close down our bakeries. Pandesal, which is now averaging P2 per piece at about 32 grams each is no longer viable with the new flour prices,” PFBAI president Lucito Chavez said.

The bakers are asking the government to start importing cheaper flour through the Philippine International Trading Corp. (PITC). If this is not possible, the bakers said they will settle for a reduction in flour tariff. Currently, a five-to seven-percent duty is imposed.

The bakers have also asked the Department of Trade and Industry (DTI) to step in the price of flour under government control.

The bakers said DTI should talk to local flour millers not to price their products too far from the P650 per bag selling price of the importers of low-grade China flour.

The main reason for the spiraling prices of flour, the bakers said, is the low supply of wheat-the raw material for the production of flour-in the global market.

The increase in flour prices has also affected other flour-based products such as noodles, cakes, pastries and snack goods.

Fed rate cut creates elbow room for BSP to trim its rates – Tetangco By Des Ferriols Thursday, December 13, 2007

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said the latest cut in US interest rates created an elbow room for the Bangko Sentral ng Pilipinas (BSP) to ease its policy settings one last time this year.

Although Tetangco cautioned that there were still risks to the BSP’s inflation target, he said the overall outlook remained benign for 2008 when this year’s monetary policy moves start to take effect on the market.

At its meeting on Tuesday, the US Federal Reserve Board decided to cut its key rates by another 25 basis-points in an attempt to prevent a housing and credit meltdown from pushing the economy into a recession.

US Fed officials explained that the cut, the third this year, was necessary to boost US growth because the slump in the housing market and the backlash on the financial system are beginning to affect business and consumption.

BSP officials are also wary of the impact of a slowdown in the US on the country’s economic momentum but Tetangco expressed optimism that at worst, the reverberations would be muted except in the export sector.

At the very least, Tetangco said the cut in the US key rates gave the Monetary Board some elbow room in monetary policy particularly since inflationary pressures were largely absent on the demand-side.

“Nonetheless this should be viewed together with the risks to the favorable outlook such as volatilities in the international commodity and food prices,” Tetangco said.

The central bank chief added that there were also uncertainties in the global financial markets as giant financial conglomerates brace for more and possibly even bigger write-downs of subprime-related losses at the end of the year and on to 2008.

As institutions like Merill Lynch, Citibank and UBS AG became one of the biggest casualties of the meltdown in the US subprime market, investments in emerging markets are expected to dry up with fund managers becoming risk-averse.

According to Tetangco, this factor remained in the list of factors that the MB would be considering when it meets next week for the last monetary policy-setting meeting it would have this year.

The cut in the US Fed rate was widely anticipated and stocks even stumbled in the US stock market because investors are hoping for a larger 50 basis-point cut on the Fed’s most effective tool for influencing economic activity.

The latest cut in the US rates reversed earlier statements that it made saying that the previous two cuts were enough to help the US economy survive the current imbroglio.

Although the BSP itself made no similar statements, it’s elbow room only became even larger after the significant slowdown in domestic liquidity growth since it started its mopping up operations in May.

Moreover, inflation has been consistently well bellow its three to four percent target and was projected to average at 2.7 to 3.1 percent for the whole of 2007 despite surges in dollar inflows and the rise in oil prices.

The absence of demand-side pressure, however, was also seen by the market as an indication that since the current growth was being fueled by consumption, it was largely hollow and therefore unsustainable over the long term.

Consumption funded by remittances from overseas Filipino workers has been fueling the country’s economic momentum for the last decade and even more so in the last two years when remittances started hitting all-time highs.

In contrast, industry and agriculture have been lagging behind services, indicating little opportunity for significant job creation and eventual decline in what economists said was the economy’s dangerous dependence on remittances.

Chief News Editor: Sol Jose Vanzi

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