MANILA, Philippines -- (UPDATE 2) Annual inflation accelerated to a 14-year high of 11.4 percent in June from a revised 9.5 percent in the previous month as food prices continued to soar, raising expectations of a further increase in the central bank's key interest rates later this month.

Core inflation, which strips out volatile food and energy prices, jumped to 6.6 percent from 6.2 percent in May, the National Statistics Office said on Friday.

The headline figure was above the central bank's forecast range of 10.4 percent to 11.2 percent for the month and was the highest since May 1994 when inflation stood at 11.5 percent.

Maintaining a hawkish stance, Philippine central bank Governor Amando Tetangco Jr. said "demand pressures will moderate as monetary policy is generally tightened."

"We share the view that current oil and food prices are hardly sustainable," he told reporters.

The government said Friday that the upsurge in inflation was due to "soaring prices of rice nationwide along with the upward adjustments of other food items such as flour and flour products, fruits and vegetables and meat in selected regions.

"Tuition fee hikes and the series of upward adjustments in petroleum products also contributed to the uptrend," the statement said.

The school season began last month.

The central bank meets next on July 17 to decide what to do with interest rates, six weeks after it raised key rates by 25 basis points, the first rise in nearly two years, to 5.25 percent for overnight borrowing and 7.25 percent for overnight lending.

For the first half of the year, inflation averaged 7.6 percent, well above the central bank's full-year target of 3.0-5.0 percent. Inflation in May has been revised from the earlier reported 9.6 percent.

Prices of food, which accounts for about half of the consumer basket, rose 17.4 percent in June after a 14.2 percent increase in May. Rice prices jumped 43.0 percent, faster than the 31.3 percent rise in the previous month.

But the fuel, light and water index rose at a slower pace of 7.6 percent from 8.2 percent in May.

Oil continued its record-breaking run, stoking fears about runaway inflation and bolstering expectations of higher borrowing costs and weaker economic growth across the globe. Light, sweet crude settled up $1.72 at a record $145.29 per barrel on the New York Mercantile Exchange on Thursday after trading as high as $145.85 -- also a new high.

The Philippines imports almost all of its oil requirements.

The central bank now expects average inflation in 2008 to be anywhere between 7.0 percent and 9.0 percent and should ease to 4.0-6.0 percent next year.

"To keep those expectations (of sustained rise in inflation) anchored, the central bank will have to keep on raising interest rates, and hawkish comments from both Governor Tetangco and his deputy (Diwa Guinigundo) have indicated as much," said Lim Su Sian, economist at DBS Bank.

"We continue to look for benchmark rates to be lifted a further 25 basis points at the central bank's next policy meeting on July 17, taking the reverse repo and repo rates to 5.50 percent and 7.50 percent, respectively."

Lim said another rate hike of half a percentage point is likely before the year ends.

"The gain is larger than expected with the headline in double-digits. I think the BSP (central bank) will have little option but to continue to tighten," said economist Simon Wong of Standard Chartered Bank.

"I see a 25 basis points (bps) increase in the 17 July meeting but cannot rule out the risk of even stronger action, say a 50 bps hike.

"I had earlier expected the headline to moderate based on stabilizing food prices but obviously the current surge in oil prices is pushing back that expectation further.

"I do agree with the central bank's inflation forecast but clearly the outlook is very volatile at this stage.

Another economist, Edward Teather, of UBS said, ?I do think inflation will slow to a single digit next year but without policy tightening from the BSP it may not fall by enough to reach the central bank's inflation target range at the end of next year.?

Forecast Pte. Ltd.?s Vishnu Varathan said "The key issue here is expectation rather than inflation in itself.

?The central bank could also start mulling a more aggressive rate hike of 50 bps given that it has been caught on the soft side of estimates more than it can care to recall, possibly warranting a move to establish market confidence that it is not behind the curve." --Reports from Thomson Financial, Reuters and Agence France-Presse