(STAR) By Des Ferriols -Beyond rising inflation rate, Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said slowing regional trade would temper this year’s economic growth.

Economic officials have blamed high inflation for the expected slowdown in growth this year but Tetangco said the more significant factor was the slowdown in trade among Asian countries.

Tetangco has just concluded meetings with the Japan Credit Rating Agency (JCRA) which he said expressed concerns over the impact of the US economic slowdown.

“We have to consider regional trade and investment activities that make the region a lot less dependent on the US economy,” Tetangco said. “In that sense we are insulated.”

However, Tetangco said the increase in regional trade had been due to the robust trade in raw materials for products that were processed in certain Asian countries and ultimately end up in the US market.

“So in that sense there is no total delinking,” he said. “We still will be affected by the US slowdown although the impact will still be less than it could have been several years ago.”

Tetangco said, however, that even if slowing trade would have a longer-term effect on growth, inflation did have an impact on short-term pressures especially on consumer spending.

“Even if we were able to increase trade relations within the region, of course inflation would still have an impact on growth,” Tetangco said.

Tetangco explained that demand would naturally react to inflation pressures since rising prices meant that consumers would be able to buy less for their money.

“It erodes our purchasing power,” he said.

However, Tetangco said that, thus far, he said consumption continued to be healthy with no clear signs of deceleration.

“Inflation has an impact but I think the slowdown in our major trading partners is affecting us more,” he said.

By 2009, however, Tetangco expects growth to be sustained especially with the inflation rate projected to start going down in the first quarter and on to the end of the year.

“A growth of five to six percent is still respectable,” he said. “But we want to wait until the economic department completes its evaluation to come up with their new projections for 2009.”

Tetangco expressed confidence that before consumer spending gets seriously affected, inflation would start coming down especially since the escalation in food prices was no longer a risk factor to inflation.

Tetangco said monetary officials are still wary of the volatility in world oil prices despite the fact that prices have gone down significantly from the historic highs last month.

According to Tetangco, the BSP still considers it a risky situation and monetary policy would remain “appropriately tight” while the Monetary Board monitors prices in the months to come.

Tetangco said there were still risks but 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 are expecting. That peak, Tetangco said, would not be seen until October.

Chief News Editor: Sol Jose Vanzi

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