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THE
spikes in food and fuel prices have caused the country’s
inflation rate to hit 9.6 percent in May, its highest
level in nine years or since January 1999, according to
the National Statistics Office (NSO).
NSO data
show that while the prices of all commodities posted had
increased, inflation of food, beverages and tobacco (FBT)—which
posted a 13.7-percent increase—was the biggest cause of
the surge in prices in May.
The NSO
said Thursday that the annual inflation rate for food
alone soared to 14.3 percent in May from 12 percent in
April. The agency attributed this to double-digit
increases in rice prices, which increased by 31.7
percent, and corn prices, by 27.1 percent.
“This
was primarily triggered by the continuing higher annual
price increases in the heavily weighted FBT index. The
rest of the commodity groups also posted higher
inflation rates during the month. Inflation a year ago
was 2.4 percent,” the NSO said.
“Last
year’s virtuous cycle of a stronger peso, lower
inflation and lower interest rates have been replaced by
a vicious circle for policymakers,” Sean Callow, a
senior currency strategist at Westpac Banking Corp. in
Sydney, was quoted by Bloomberg News as saying.
“Inflation pressures are too pressing to ignore.”
The May
inflation figure already reached the high end of the
inflation projection of the Bangko Sentral ng Pilipinas
(BSP)—a range of 8.8 percent to 9.6 percent.
Due to
this, University of Asia and the Pacific (UA&P)
professor Victor Abola said the country could now very
well expect the BSP to raise interest rates. He said it
is possible that the BSP may increase interest rates by
0.25 percent to 0.5 percent, just to show that the
central bank is concerned with the current spike in
commodity prices. The monetary board indeed raised rates
later on Thursday.
But
University of the
Philippines
professor Felipe Medalla, also a former socioeconomic
planning secretary, said raising interest rates would
not help ease the inflation problem.
While a
25-basis-point increase in interest rates is more than
enough “symbolic” gesture on the part of the BSP to show
that it is mindful of the situation, this does not
change the fact that inflation is caused by high oil and
food prices, which cannot be addressed merely by a
stronger peso, according to Medalla.
“Higher
interest rates will only make the peso stronger but it
will not be enough to [bring down] oil and rice prices.
The origin of high inflation is not [a shortage in]
money supply but high rice and oil prices,” Medalla
explained.
He said
the BSP need not raise interest rates lest it runs out
of “bullets” if the United States increases its interest
rates.
Twenty
economists earlier surveyed by Bloomberg were evenly
divided between those who expected Bangko Sentral to
raise its benchmark interest rate for the first time
since October 2005 to 5.25 percent in Thursday’s meeting
of the monetary board, and those who predict the bank
will keep the rate unchanged at 5 percent, a 16-year
low.
Meanwhile, UP professor and economist Ernesto Pernia and
Medalla said high commodity prices would continue until
the end of the year. He even sees inflation possibly
hitting around 10 percent next month and sustaining a
double-digit figure until the end of the year.
Still,
Medalla said, even with this expectation, average
inflation for the year would not be double-digit but a
high single-digit figure.
He also
expects a gradual tempering of inflation and expected
the 1.5-percent month-on-month increase in May from
April.
On the
other hand, National Economic and Development Authority
Director General Augusto Santos admitted that the
inflation rate in May “will most likely” exceed the
inflation forecast of the Development Budget
Coordination Committee.
“In the
absence of a swift lowering of consumer prices for the
rest of the year, inflation for 2008 will most likely
surpass the Development Budget Coordination Committee
target. Nevertheless, for 2009, inflation is still
expected to be within the 3.5 percent, plus or minus
1.0-percent target,” Santos said.
Rice and
corn prices outside of Metro Manila increased, while
prices of local petroleum products also increased
several times in May, thus exerting additional pressure
on inflation.
World
rice costs rose to unprecedented levels in April,
boosting local retail prices 37 percent in May from a
year earlier. The Philippines is the world’s biggest
importer of the grain, and buys almost all of its oil
from abroad.
“A total
of five adjustments, amounting cumulatively to P4.50 per
liter, were made during the month for gasoline, kerosene
and diesel. Meanwhile, the prices of LPG also increased
only once, amounting to P0.94 a liter. Dubai crude oil
reached an average of $119.46/bbl in May, 15.5 percent
higher than the average in April. This indicates that
several adjustments in the domestic price of oil may
happen in the coming months,”
Santos
explained.
The
government allowed some transport fares to rise starting
May 21, and approved minimum wage increases beginning
this month. Jollibee Foods Corp., the nation’s biggest
fast-food company, will raise prices, Bloomberg noted,
quoting BusinessMirror’s report on May 14.
Faster
inflation in the
Philippines
cut growth in the first quarter to the weakest in a year
and a half.
“Tightening would hamper the government’s attempts to
boost growth,” Callow said. “There are no easy options”
and the central bank has to make “an absolutely lineball
decision.”
The
annual inflation rate in the National Capital Region
(NCR) increased to 8.3 percent in May from 7.4 percent
in April due to higher prices in FBT, services and the
miscellaneous items index.
In areas
outside the NCR, annual inflation rose to 10.2 percent
in May from 8.7 percent in April. All the commodity
groups registered higher annual inflation rates except
the miscellaneous-items index.
In terms
of commodity groups in NCR, inflation rate for FBT rose
to 12.7 percent in May from 11.1 percent in April;
services, 9.9 percent from 8.5 percent; and
miscellaneous items, 1.7 percent from 1.6 percent.
The
inflation rate for food alone in NCR soared to 13.2
percent in May from 11.5 percent in April. A higher
annual price increase was significant in rice prices
which increased by 43.6 percent in May from 38.4 percent
in April.
In areas
outside NCR, annual inflation in all the commodity
groups continued to move at higher rates particularly
FBT which increased to 14.1 percent in May from 11.5
percent; fuel, light and water, 9.1 percent from 8.8
percent; and services, 6.6 percent from 5.9 percent.
Annual
price hikes for food alone jumped to 14.7 percent in May
from 12.1 percent in April. Inflation rate for rice
alone in outside NCR surged to 30.1 percent in May from
22.7 percent in April.
The
biggest gain in rice prices was seen in Zamboanga
Peninsula—a 23.6-percentage-point increase to 33 percent
from 9.4 percent; followed by the Autonomous Region in
Muslim Mindanao which registered an
18.7-percentage-point increase to 32.6 percent from 13.9
percent. (With Bloomberg) |
