MANILA (UPDATED) - The Philippine central bank expects annual inflation in January to be at 2.5 to 3.4 percent, reflecting the impact of an increase in tax rates on tobacco and alcoholic drinks and higher power and water rates, Governor Amando Tetangco said.
Lower food and oil prices and a strong peso, however, may offset higher prices of utilities, tobacco and liquor, he said.
"The latest forecasts suggest that average inflation for 2013 and 2014 would settle at the lower half of the government-set target range of 3-5 percent, reflecting continued manageable inflation pressures and well-anchored inflation expectations," Tetangco told reporters in a mobile text message.
Annual inflation in December was at 2.9 percent.
Higher taxes on tobacco and alcohol products took effect this month, a measure expected to raise much-needed revenues for the government and boost the country's chances of securing investment grade credit status.
The Philippine central bank kept its key policy rate
steady at a record low of 3.50 percent for the second meeting in a row last week, with economic growth expected to remain resilient and a benign inflation outlook. But it reiterated warnings of risks posed by a surge in capital inflows.
The peso has risen less than 1 percent against the U.S. dollar this year aided by strong dollar inflows, extending gains from last year when it was emerging Asia's second best-performing currency after the South Korean won.
The central bank has trimmed its forecast for average inflation in 2013 to 3.0 percent from 3.1 percent but raised its 2014 forecast to 3.2 percent from 2.9 percent.
The national statistics agency will release January inflation data on Feb. 5.