HIGH  FOOD  PRICES  NO  LONGER  A  RISK  TO  INFLATION  -  TETANGCO

MANILA, AUGUST 20, 2008
(STAR) By Des Ferriols - Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said high food prices no longer constitute a risk to inflation although it is too early to say that prices have started to ease.

Tetangco told reporters that monetary officials remain wary over the volatility in world oil prices despite the fact that prices have gone down significantly from the historic highs last month.

“It’s too early to say that inflation rate has started to ease,” Tetangco said. “But there are signs that prices have started to moderate. It’s a matter of degree.”

According to Tetangco, BSP still considers the situation risky. As such, monetary policy will remain “appropriately tight” while the Monetary Board will be monitoring prices in the months to come.

Tetangco said there are still risks, mostly from oil prices. “In food, it looks like the pressures are beginning to moderate,” he said. “We’re watching.”

Tetangco’s guarded optimism over food prices was bolstered by reports from the Bureau of Agricultural Statistics that the country’s annual farm output grew 5.4 percent in the second quarter, up from 3.9 percent in the first quarter of the year.

The increase in farm output could sustain the moderation in food prices which account for over half of the consumer price index.

In July, the inflation rate soared to 12.2 percent and the BSP said this was not the peak level monetary officials were expecting. That peak, Tetangco said, would not be seen until October.

This means the BSP may be expected to continue tightening its settings, with the market widely anticipating key policy rates to be raised by 100 to 125 basis points by the end of the year.

The BSP so far has increased its key policy rates by 75 basis points and its latest adjustment of 50 basis points last month was intended to jolt the market enough to rein in inflation expectations which officials said would react faster.

In terms of macroeconomics, any adjustment in the BSP’s key policy rates actually took at least 18 months to filter through the system by controlling money supply and dampening demand pressures.

Inflation rate, however, has been rising faster than even the most pessimistic projections and the NSO said that with the exception fuel, light and water (FLW), higher inflation rates were recorded in all commodity groups, leading to the surge last month compared with the 2.6- percent inflation rate in July last year.

Tetangco said the rise in the inflation rate was expected but the actual rate was a notch higher than the projection made by the central bank which said it expected the July inflation rate to stay within a range of 11.2 percent to 12 percent.

“Monetary policy will continue to be appropriately tight until we see a more benign outlook and manageable inflation expectations,” Tetangco said. “It’s premature or too early to say that the risks are no longer there.”

The Monetary Board will meet again on Aug. 28 and the market has been trying to gauge whether the next adjustment would be 25 or 50 basis points. .


Chief News Editor: Sol Jose Vanzi

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