May inflation soars to 9-year high at 9.6%
Thomson Financial
First Posted 08:58:00 06/05/2008
Filed Under: Economy, Business & Finance
MANILA, Philippines – (UPDATE) Annual inflation jumped to a nine-year high of 9.6 percent in May, coming at the top end of the central bank's forecast and bolstering expectations of an interest rate hike when policy makers meet later Thursday.
Government data showed food and energy prices continued to soar last month, pushing inflation to its highest level since January 1999 when the rate stood at 10.5 percent.
The central bank had expected last month's inflation to range from between 8.8 percent and 9.6 percent.
Inflation in April was 8.3 percent.
"It's bigger than what the market had expected. The central bank will hike rates by at least 25 basis points and will raise rates further in the coming months," said Frederic Neumann, economist at HSBC.
"We expect the central bank to tighten monetary policy with rate hikes totaling 75 basis points by yearend."
Policy makers have kept the overnight borrowing rate at 5.0 percent and overnight lending rate at 7.0 percent at the last two meetings.
The central bank slashed rates by a total 100 basis points between October and January, as inflation last year averaged at 2.8 percent, below the target of 4.0 percent to 5.0 percent.
The widely anticipated rate hike on Thursday will be the first since October 2005.
Central bank officials declined to comment ahead of the outcome of their policy meeting.
Governor Amando Tetangco Jr. has said that the central bank will "remain vigilant and act preemptively and decisively once we see signs that our inflation outlook for 2009 is at risk."
HSBC’s Neumann said crude oil prices might be on a downward trend but would likely stay above $100 a barrel.
"Unless oil falls dramatically, the inflation pull will be higher in the Philippines. Inflation is driven not just by oil but food, primarily, and other items such as services as indicated by core inflation at 6.2 percent," he said.
The Philippines imports nearly all of its crude oil requirements and is one of the biggest importers of rice whose prices have surged amid low global supply.
Core inflation, which strips out volatile food and energy prices, rose from April's 5.9 percent.
Consumer prices rose 1.5 percent in May from the previous month, slower than the 2.0 percent rise in April.
For the first five months, inflation averaged 6.9 percent, well above the central bank's full-year target of 3.0 percent to 5.0 percent.
Food inflation climbed to 14.3 percent from 12.0 percent in April, with rice prices surging 31.7 percent. Prices of corn, cereals and dairy products also rose at double-digit pace.
Inflation for the fuel, light and water group rose to 8.2 percent from 8.0 percent in April.
"Over the coming two months, the headline reading may breach into double-digit territory before dropping back on account of easing global commodity prices and slowing economic activity," Neumann said.
"However, the recent upside surprises in the headline reading suggest a significant upside risk to our initial forecast (of 7.7 percent for the whole year)."
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