March inflation seen at 19-mo high as oil, rice prices soar
By Enrico dela Cruz
Thomson Financial
First Posted 20:15:00 03/28/2008
MANILA, Philippines -- Inflation likely accelerated for the fourth straight month in March due to higher import costs of crude oil and rice, and the uptrend is expected to continue, putting the government's full-year target at risk, economists said Friday.
Economists surveyed by Thomson Financial were looking at inflation of between 5.8 percent and 6.2 percent for March, up from the previous month's 5.4 percent which was a 16-month high.
An inflation of 5.8 percent will be the highest in 19 months, or since August 2006 when it stood at 6.3 percent.
The National Statistics Office will release the inflation data on April 4.
Economists said average inflation in 2008 may hit the higher end of the government's target of 3-5 percent, given intensifying pressures from rising prices of commodities particularly rice and oil.
Others warned inflation may accelerate beyond the target, with the government planning to spend heavily on infrastructure, willing to give up its goal of balancing the budget this year in order to boost growth and shield the economy from external shocks.
A higher inflation this month will support the Philippine central bank's cautious stance. At its last meeting on March 13, the central bank kept key interest rates steady despite further rate cuts in the US, citing the need for caution in monetary policy.
The central bank kept key overnight rates steady at 5.0 percent for borrowing and 7.0 percent for lending this month, after cutting them four times for four consecutive months from October last year.
The central bank will hold its next policy-setting meeting on April 17.
"For the remainder of the year we continue to see no change to the central bank's policy rates," said Lim Su Sian, economist at DBS Bank in Singapore.
"However, much of this view hinges on inflation and how far it eventually deviates from the central bank's 3.0-5.0 percent target range."
Lim said "moderate but persistent overshooting of the target could prompt the central bank to lift interest rates, since demand-side inflationary pressures are also at play."
Inflation in the first two months of the year averaged 5.15 percent.
PRESSURES TO PERSIST
Central bank governor Amando Tetangco has said that based on the central bank's latest assessment, the inflation outlook for 2009 is still consistent with the 2.5-3.5 percent target for that year. But he said "external supply shocks" put the 2008 target of 3.0-5.0 percent at risk.
Crude oil soared to an all-time high above $111 a barrel early this month. Oil had rallied along with other global commodities, including gold and other precious metals, as investors sought safe-haven assets while the dollar sagged and the US economy showed more signs of weakening.
Escalating Asian rice prices, meanwhile, have prompted Manila to increase its imports of the staple food, in order to beef up local supply and keep domestic prices from going up.
The Philippines is one of the world's largest rice importers. Filipinos eat rice at breakfast, lunch and dinner and the commodity has a significant share in the consumer price index basket.
Key food items such as rice, meat, corn and flour comprise around 13.5 percent of the CPI basket, according to the central bank.
DBS Bank is looking at an average inflation of 5.0 percent for 2008, while Standard Chartered Bank is projecting a lower average of 4.5 percent.
"I expect March inflation to come in at 6.2 percent, driven again by higher oil and food prices. Given that we expect oil and food inflation to peak in the first half, I think we will see lower headline inflation in the second half," said Simon Wong, an economist at Standard Chartered Bank in Hong Kong.
Banco de Oro Unibank sees inflation in March coming in at 5.9 percent.
"We have not seen the peak yet. Inflationary pressures will persist in the first half," said Jonathan Ravelas, Banco de Oro chief strategist.
David Cohen, chief economist at Action Economics in Singapore, said inflation likely rose to 5.8 percent in March and could hit more than 6 percent in the second quarter.
The government's pump-priming plan for the domestic economy could also be a source of inflationary pressures, said Lim of DBS.
On Wednesday, Philippine President Gloria Arroyo said government efforts to build roads, bridges, ports and educational facilities should serve as a "buffer to mitigate the pain of a deteriorating global economy and the accompanying rise in prices (of commodities)."
Finance Secretary Margarito Teves said the $1.2-trillion national budget for 2008 would allow the government to raise its capital spending to 2.7 percent of the gross domestic product, from 2.5 percent last year.
The government is aiming for GDP growth of 6.3-7.0 percent this year, a bit slower than last year's actual expansion of 7.3 percent, the highest in 31 years.
($1 = P41.90)
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