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.

Philippine GDP Q4 2007

The Philippine economy grew faster than expected in the fourth quarter, taking full-year growth to a 31-year high of 7.3 per cent and sowing some doubts about the size of monetary easing expected later on Thursday. Officials said the economy grew a seasonally adjusted 1.8 per cent in the final quarter of 2007 from the previous quarter. The figure came above a 1.7 per cent rise expected by analysts and pushed full 2007 growth well above the 7.0 per cent figure forecast in a Reuters poll.


The government maintained a 2008 growth target of 6.3-7.0 per cent despite the expected slowdown in the United States, the Philippines’ largest trading partner.

Expectations that the country’s growth momentum will carry forward well into 2008 made some analysts trim their expectations for the central bank’s policy meeting later on Thursday and bet on a 25 basis point interest rate cut rather than a steeper 50 basis point reduction.

Philippine interest rates are now at a 15-year low after four cuts last year, but markets expect the central bank to cut rates further to shield the economy from a global slowdown.

Inflation hit an 11-month high of 3.9 per cent last month, but the central has voiced confidence it will keep price growth within its 2008 target of 3-5 per cent.

An 8.7 per cent surge in annual output of the services sector, the highest in more than half a century, underpinned 2007 growth, officials said.

They said the economy grew by a revised seasonally adjusted 1.0 per cent in the July to September quarter. Compared with a year earlier, the economy grew 7.4 per cent in the fourth quarter.

”In an environment of benign inflation, low interest rates and a strong peso, the Philippine economy turned in its best performance in 31 years,” said Romulo Virola, the secretary-general of the National Statistics Coordination Board.

The actual growth data came at the upper end of the government’s most recent forecast of 6.7-7.8 per cent growth in the fourth quarter from a year earlier and 6.9 to 7.3 per cent full-year expansion in 2007.

Gross national product, swelled by money sent home by Filipinos working overseas, grew 6.5 per cent in the fourth quarter from a year earlier and 7.8 per cent in the full year, also a 31-year high.

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