(STAR) By Des Ferriols - The country’s inflation rate rose to 5.4 percent in February, its highest level since October 2006, the National Statistics Office (NSO) reported yesterday.

The figure was a sharp increase on the 2.6 percent posted for the same period last year and up on the January inflation rate of 4.9 percent.

Core inflation, which excludes selected food and energy items, rose to four percent in February from 3.4 percent in January, the NSO said.

It was the highest inflation rate since October 2006, which also saw 5.4-percent inflation.

The Bangko Sentral ng Pilipinas (BSP) is projecting a February inflation rate of between 4.8 and 5.5 percent.

“The data supports the argument that the central bank will leave rates unchanged next week,” said Jonathan Ravelas, an economist at Banco de Oro.

“We have predicted just one 25 basis-point cut in the first quarter, which was delivered in January.

“We’re looking at another 25 basis point cut in the second quarter, although we think inflation will rise further, closer to six percent in the second half, given high oil prices,” he said.

Ravelas said he was not ruling out a further rate cut within the year, given expectations of more rate cuts by the Federal Reserve to revive the US economy.

BSP Governor Amando M. Tetangco Jr. said the BSP expects the inflation rate to taper off in the second half of the year, adding that the BSP is constantly monitoring price trends to determine if the central bank’s projections remain valid going forward.

Data from the NSO showed that the headline inflation rate surged year-on-year compared with only 2.6 percent in February 2007.

The NSO said prices went up in all commodity groups except for fuel, light and water where prices were mitigated by the strength of the peso that brought down currency adjustments in the utility rates.

Prices increases, according to the NSO, were led by surges in the price of rice which went up 7.7 percent, followed by corn, cereal preparations and dairy products, as well as poultry products, fish and meat.

Tetangco said the surge in food prices pushed the overall inflation rate up since they comprise about 13.5 percent of the consumer price index.

This was confirmed by the NSO’s consumer price index where the annual inflation rate for food alone climbed to seven percent in February from 6.2 percent in January.

Tetangco said the increase in the prices of these items was only partly offset by the decline in the prices of petroleum products after the reduction in tariffs on imported oil and oil products.

As a result, the fuel, light and water commodity group registered slower inflation rate of 4.6 percent compared with 5.5 percent in January.

“The risks to our outlook continue to be the elevated oil and commodity prices,” Tetangco said. “At the moment, we expect this to taper off towards the latter half of the year.”

According to Tetangco, however, the uptick in February would not be unexpected since the BSP has been projecting a hump in the inflation rate trajectory towards the middle part of the year.

Although the full-year average was projected to be within the official target inflation of three to five percent for the whole year, Tetangco said the trajectory on a monthly basis would not be uniformly level throughout.

“We’re not targeting inflation on a monthly basis,” Tetangco stressed.

“But current forecasts show that sometime during the first half of the year, the monthly inflation would rise to around the top end of the target range.”

Chief News Editor: Sol Jose Vanzi

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