CONSUMER PRICES SOAR TO HIGHEST IN 14 YEARS
MANILA, JULY 6, 2008 (STAR) By Des Ferriols - Inflation rose to a 14-year high in June on the back of soaring prices of oil and basic goods, data released yesterday by the National Statistics Office (NSO) showed. With prices at new record highs, the central bank hinted at raising interest rates significantly.
NSO records show consumer prices soared 11.4 percent last month from a year earlier. Inflation in the same period last year was only 2.3 percent. The increase was the biggest rise since May 1994 and exceeded both market and central bank expectations. It was also the first time inflation had hit double digits since January 1999.
Malacañang, reacting to the latest inflation figures, said the government is doing its best to temper the effects of the “global escalation of oil prices” on local inflation.
The market has been expecting double-digit inflation rates due to the runaway global oil prices, which reached $143 per barrel this week.
“Demand pressures will moderate as monetary policy is generally tightened,” Bangko Sentral ng Pilipinas Gov. Amando Tetangco said after the release of the inflation data.
Analysts believe Tetangco’s comments indicated that the BSP will raise interest rates again at its next policy meeting on July 17 after it lifted its main rate by 25 basis points last month in its first rate rise in almost three years.
“I think the BSP will respond by raising policy rates on 17 July,” said Edward Teather, an economist at UBS, adding a rise of either 25 or 50 basis points was possible.
“I do think inflation will slow to a single digit next year, but without policy tightening... it may not fall by enough to reach the central bank’s inflation target range at the end of next year.”
Vishnu Varathan, of Forecast Pte. Ltd., said the BSP may opt for a bigger half-point rate rise to dispel any doubts that it had not been aggressive enough in its efforts to contain inflation.
The BSP eased its policy four times last year, helping the economy grow 7.2 percent, a 31-year record, and cut rates again in January. But as inflation had risen steadily since, racing well past the government’s target range of three percent to five percent, the authorities switched to a tightening mode, even as growth tapered to an annual rate of 5.2 percent in the first quarter.
Deputy BSP governor Diwa Guinigundo has indicated raising interest rates was not the only way of tightening policy.
Other tools included raising bank reserve requirement ratios or expanding the central bank’s special deposit account window, in which banks park funds, he told reporters on Thursday night.
Although the Philippines is not the only country burdened by high inflation, it is one of the hardest hit by soaring oil prices because it imports all of its oil requirements. The country is the world’s biggest importer of rice.
Excluding selected food and energy items, core inflation further climbed to 6.6 percent in June from 6.2 percent in May. This showed that the prices of volatile items such as food and oil were rising faster than other items in the consumer price index.
Tetangco stressed the increase in inflation rate was not unexpected, especially considering the impact of the unprecedented jump in world oil prices.
“The increase in domestic pump prices triggered a large price buildup across commodities and services groups,” Tetangco said, adding that this trend was expected to continue and peak in the third quarter.
By the fourth quarter of the year, Tetangco said, inflation rate should start going down.
Tetangco said the unsustainable prices of both oil and food resulted in global slowdown and widespread inflation in all countries, and not just in oil-importing ones.
In the Philippines, the NSO said the escalation in prices was apparent across commodity groups although it was tamer in Metro Manila where the average inflation was at 9.2 percent compared with the 12.3-percent average outside the capital.
The NSO said that the prices of food rose 17.4 percent in June and that of rice alone surged 43 percent as the government had trouble calming down fears of a rice shortage that had people coming out in droves to buy subsidized rice.
As oil prices showed no indication of slowing down, prices of food around the globe were also going up but not as dramatic as those of oil.
The demand for basic food commodities has been going up and economists have advised governments against dismissing the price surge as a temporary phenomenon.
But Tetangco said the resulting slowdown in the global economy would bring commodity markets back to their senses.
Secretary to the Cabinet Ricardo Saludo said Malacañang is alarmed by the impact of the skyrocketing crude prices on inflation and that it’s working with private groups and industry leaders to address the problem.
“The government has been working with both the private sector and especially the industry leaders, the oil companies, the power sector, to try and minimize as much as we can the impact of global escalation of oil prices on our domestic inflation,” Saludo said.
“It’s always a concern when inflation goes up. We would really like inflation to be as low as we can and the good thing is under the Arroyo administration, we’ve actually seen an average inflation rate that is lower than previous administrations,” Saludo said.
He cited the average inflation rate of 5.5 percent in 2006 and 2007 which, he said, was definitely lower than the averages posted during the Aquino, Ramos or Estrada administrations.
Saludo said that the government is taking various steps to address the rising costs of goods and commodities and that in implementing these measures, the private sector has always been involved.
The measures include providing additional support to the agriculture sector in order to boost domestic production of food so that the country would be less dependent on imports.
The prices of rice in the world market have gone up to record levels since the start of the year as supplies from major rice producing countries have been limited.
World oil prices have also reached record levels, bringing domestic pump prices to rates never before seen in the country.
Saludo also noted that the government is undertaking several energy conservation initiatives.
The government is also developing alternative sources of fuel, particularly those coming from indigenous sources, which are readily available and cheaper than crude oil.
“We’ve been pushing for the Renewable Energy Act and the Alternative Energy Law and we have ushered in successful ventures like Chemrez and other biofuel ventures as well as in the energy and micro-hydro facilities especially in the rural areas,” Saludo said.
“All of this will help the country cope with the global burden of escalating prices. We just have to keep pushing these energy and food initiatives,” he added.
Saludo noted that the President has also convened the National Food and Energy Council, which she chairs, to oversee the implementation of measures aimed at addressing the country’s needs in food and energy.
Saludo said he agrees with BSP that inflation will eventually slow down in the coming months, given the measures set in place by the government.
The National Economic and Development Authority has indicated that the 11.4 percent June inflation rate is still well within the 7.4 percent target for the year.
“We have been lucky that this administration has not only sustained the longest period of expansion in our economy, now running at 30 quarters of unbroken growth, but also we have the lowest annual average inflation compared with previous administrations and also the annual highest GDP growth rate. So we hope that this can be sustained,” Saludo said.
Deputy presidential spokesperson Lorelei Fajardo, for her part, appealed for greater public support for the government’s price control initiatives.
“Price increases in food may seem to be the order of the day but the government will not tolerate hoarders and vultures who will prey on our consumers,” Fajardo said.
“We must work together as a people if we are to overcome this economic turmoil we are presently riding,” she added. – With Marvin Sy
Chief News Editor: Sol Jose Vanzi
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