Food, fuel price increases likely boosted inflation

By L. D. Desiderio, Business World

Posted at Jan 31 2011 09:02 AM | Updated as of Jan 31 2011 05:02 PM

MANILA, Philippines- Inflation likely accelerated to 3.5% this month owing to higher food and fuel prices, analysts polled by BusinessWorld said.

The median outlook falls within the Bangko Sentral ng Pilipinas’ (BSP) 2.7-3.6% estimate. January data is scheduled to be released this Friday.

"Higher food and fuel prices were the main drivers," University of the Philippines economist Benjamin E. Diokno said in a text message.

"Overall, inflation is expected to be tame and within [the] official target range," he added.

The BSP -- which currently has a 3-5% target for 2011 and a full-year forecast of 3.6% -- last Friday said private economists saw inflation staying within target ranges for this year and the next.

Headline inflation was unchanged at 3% in December from a month earlier, bringing the full-year average to 3.8% -- within the central bank’s 3.5-5.5% target for 2010.

Price increases were also cited by HSBC economist Sherman W. K. Chan as having boosted January inflation, while Rizal Commercial Banking Corp. Senior Vice-President Marcelo E. Ayes said a weaker peso would have contributed.

With inflation likely to soon to exceed the midpoint of the BSP’s target band, Mr. Chan said policy rate hikes could come as early as the second quarter.

Mr. Ayes concurred, noting that a US Federal Reserve bond purchase program aimed at pumping life into the ailing American economy would be over by June.

Mr. Diokno, for his part, said the BSP would likely start raising interest rates in the third quarter. "The important consideration is that government should have more confidence that [the] recovery is on sounder footing," he said.

"Monetary policy works with a lag, so BSP should be ahead rather than behind the curve," he added.

The central bank has kept its overnight borrowing and lending rates unchanged at 4% and 6%, respectively, since July 2009.

The BSP poll of nine private sector economists, meanwhile, resulted in a mean inflation forecast of 4.1% for the year, unchanged from September. For 2012 the mean forecast was 4.1%, down from the 4.5%.

The economists noted that a stronger peso could temper imported inflation despite a recent rally in global commodity prices.

Last Friday, BSP Governor Amando M. Tetangco, Jr. said 2011 inflation could range from 3.8-4.2% if upside risks materialized. BSP Deputy Governor Diwa C. Guinigundo said a new inflation forecast would be issued next week.