JULY INFLATION HITS 17-YEAR HIGH OF 12.2%
MANILA, AUGUST 6, 2008 (STAR) By Des Ferriols - As commodity prices continue to escalate, the country’s inflation rate hit a near 17-year high of 12.2 percent in July, beating central bank and market expectations and setting the stage for a third straight interest rate hike later this month.
July’s rate was above the 11.2-percent to 12-percent forecast of the Bangko Sentral ng Pilipinas (BSP) and “was the highest since December 1991” when the rate topped 13.2 percent, the National Statistic Office (NSO) reported yesterday.
“Monetary policy will continue to be appropriately tight until we see a more benign outlook and manageable inflation expectations,” BSP Governor Amando M. Tetangco Jr. said.
Analysts interpreted the central bank’s hawkish tone as a green light for a quarter percentage point hike at the next rate-setting meeting on Aug. 28. The monetary authority has raised borrowing costs by 75 basis points since June.
“Without a doubt, another 25 basis points hike on the cards at the August meeting,” said Radhika Rao, IDEAglobal economist.
The headline annual inflation number, which topped the central bank’s forecast range of 11.2 to 12 percent and market consensus in a Reuters poll of 11.8 percent, was boosted by a jump in food prices after last month’s typhoon “Frank” hit supplies, particularly in the countryside.
The central bank has revised its average inflation forecasts for 2008 and 2009 in two policy meetings in a row in July. It currently expects inflation to average nine to 11 percent this year, and six to eight percent in 2009, from 2.8 percent last year.
Inflation in June was 11.4 percent, bringing the average rate for the past seven months to 8.3 percent, according to data released by the NSO.
Except for fuel, light and water the rates for all commodity groups increased during the period, the government statistics office said.
The inflation rate for food, beverage and tobacco rose to 17.8 percent in July from 16.5 percent in June, while the figure for clothing rose to 4.5 percent from 4.2 percent, it said.
“The overall annual inflation rate for food alone further climbed to 18.6 percent in July from 17.4 percent in June,” it said, with Filipinos paying more for rice, the staple food.
Core inflation, which excludes food and energy prices, was 6.3 percent in July from a year earlier compared with 6.6 percent in June, its first let-up in pace since November.
But despite this moderation and the central bank’s view that inflation will peak in the fourth quarter, analysts said it would continue to raise borrowing costs, partly to match similar tightening across the region and maintain its yield differential.
“I think the central bank will have to raise rates again this month; to not do so will risk weakness in the peso,” said Vishnu Varathan, economist with forecast Pte. “Investors are building in rate hike expectations.”
“After the Reserve Bank of India upped the ante, the Bank of Indonesia will also be watched today.”
The Indonesian central bank is expected to raise its key rate by 25 basis points to nine percent, the highest in more than a year, later on Tuesday. It may also raise bank reserve requirements.
The Indian central bank raised its key lending rate by 50 basis points last week to a seven-year high of nine percent and increased banks’ reserve requirements by 25 basis points to rein in inflation.
The BSP’s key overnight borrowing rate is now 5.75 percent after its rate increase last month brought it back to the October 2007 level.
According to the NSO, inflation rate actually slowed down in the National Capital Region (NCR) but everywhere else, the prices of basic commodities accelerated.
The NSO said the annual inflation rate in the NCR slowed down to 8.6 percent in July from 9.2 percent in June because prices in food, light and water (FLW) actually declined and the price increases in other commodity groups slowed down.
In Areas Outside the National Capital Region (AONCR), the NSO said the annual inflation further accelerated to 13.9 percent in July from 12.3 percent in June as all the commodity groups continued to record higher annual inflation rates.
Removing selected food and energy items, the NSO said core inflation actually slowed down to 6.3 percent in July from 6.6 percent in June.
By commodity group, NSO said except for the FLW index whose annual inflation continued to slow down at 5.5 percent in July from 7.6 percent in June, inflation rates for all the commodity groups further moved up at higher rates.
Annual inflation rate for the food, beverage and tobacco (FBT) group increased to 17.8 percent in July from 16.5 percent in June; clothing, 4.5 percent from 4.2 percent; housing and repairs (H&R), 4.6 percent from 4.3 percent; services, 12.4 percent from 9.9 percent; and miscellaneous items, 3.0 percent from 2.9 percent.
The most dramatic surge was in food, however, with the overall annual inflation rate for food alone further climbed to 18.6 percent in July from 17.4 percent in June.
Inflation in rice alone was recorded at 50 percent in July from 43 percent in June while inflation in corn was at 40.6 percent from 34.3 percent. In cereal preparations, the rate was at 17.6 percent from 16.6 percent; fruits and vegetables, 13.8 percent from 12.5 percent; and miscellaneous foods, 8.9 percent from 8.3 percent.
Chief News Editor: Sol Jose Vanzi
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