Monday, February 4, 2008

Philippine Inflation on the Rise

Philippine inflation in January was at its highest level in over a year, which is likely to spell the end of the central bank’s accommodative monetary policy stance, analysts said on Tuesday. Annual consumer price inflation hit 4.9 per cent in January, well above the central bank’s forecast range of 3.7-4.4 per cent and a rapid acceleration from 3.9 per cent in December as food and fuel prices climbed.

Compared with December, prices rose 1.2 per cent in January, the biggest jump in more than three-and-a-half years.

Amando Tetangco, the country’s central bank governor, told reporters that monetary policy would take into account the latest price developments.

Only last week, the central bank cut its overnight borrowing rate by 25 basis points to 5 per cent, its lowest level since May 1992, and signalled it had room for more easing by describing price pressures as “manageable”.

Food prices soared in January, partly fuelled by the rising cost of rice, a staple in the Philippines that has to be imported as domestic harvests fail to keep pace with population growth.

The central bank expects a strong peso to moderate price pressures this year and keep average annual inflation between 3.5 and 4.4 per cent, within its target range of 3-5 per cent.

Inflation last year averaged 2.8 per cent, the lowest since 1986, helped by a 19 per cent surge in the peso against the dollar.

But the currency’s rise of nearly 2 per cent in January failed to stop prices rising. The whole of Asia is struggling with higher prices for energy and food due to tight supply and robust demand.

The peso weakened to 40.73 per dollar on Tuesday from Monday’s close of 40.68. The main stock index was down 1.07 per cent, tracking overnight losses on Wall Street.

Philippine dollar-denominated bonds were little changed from Monday’s levels. Bonds due in 2032 were quoted at 98.25/98.75 cents to the dollar and the 2031 bonds at 112.5/113, according to a Manila-based trader.

The central bank’s next rate meeting is on March 13. Last year, it cut rates four times by a total of 225 basis points.

No comments: