RP's July inflation at 3.9%


Posted at Aug 05 2010 11:01 AM | Updated as of Aug 05 2010 09:41 PM


MANILA, Philippines  - (UPDATE) The country's  annual inflation rate came in at 3.9% in July, lower than market forecasts and within the central bank's estimate, adding to expectations the policy rate will be kept at a record low for now.

The median forecast in a Reuters poll of 12 economists was for annual inflation of 4.1%, faster than June's 3.9% but within the central bank's 3.5% to 4.4% forecast.

Core consumer prices, which strip out some volatile food and energy items, rose 3.9% in July from a year earlier, higher than June's revised 3.8%, the National Statistics Office said on Thursday.

In July, food beverages and tobacco prices rose by 3.2% from 3.1% in the previous month.  Food prices alone, went up by 3.3% from 3.2% in June.

Prices of rice, a staple for most households, was slightly up by 0.3%.

Prices for utilities such as fuel, light and water climbed by 14.4% from a year ago, but was lower compared to June's 16.4%.

"Steady inflation for this month continues to support our view of a within-target full year inflation, which backs up the assessment that current policy stance remains appropriate," said Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco"

"We nevertheless are mindful of risks particularly those coming from developments in the global markets."     

Vishnu Varathan, an economist at Forecast PTE in Singapore said that steady inflation is buying time for BSP. He said that monetary policy must target price stability risks 12-18 months down the road.

 "The beef in the issue is inflation expectations and what wage hikes and transport cost hikes could do to augment inflation expectations," adding that a nominal monetary signal, like a 25 basis points hike, would be beneficial even after accounting for external risks.

"We were expecting (a rate rise) within the next two meets, but from the language, an August meeting hike seems a rather low probability outcome. October meeting hike is on the cards though," said Varathan.

Frederic Neumaan, co-head of Asian Economic Research at HSBC in Hong Kong said price  pressures, despite strong growth, are starting to ease a little bit, giving the BSP some room to remain accommodative for the time being.

"There had been some concerns that food prices would continue to drive up inflation, but the relatively favorable harvest this year seems to have dampened price pressures."

 "Going forward the inflation is likely to remain within the BSP's target range. The Philippines lagged a little bit in recovery. Other countries in Asia have seen stronger rebound in growth, hence there is no a urgent need to raise rates," said Neumann.
The central bank kept its policy rate steady at a record low of 4% percent at its policy meeting in July, making it among the handful of countries in Asia that have yet to lift interest rates since the global financial crisis.

Policymakers have said they do not see an urgent need to raise the interest rate, which has been at 4% since July 2009, with inflation on track to meet the government's targets of 3.5%  to 5.5% in 2010, and 3% to 5% in 2011.

The central bank has twice cut its 2010 and 2011 inflation forecasts given the benign inflation outlook. It now expects inflation at 4% in 2010 and 3% in 2011.