MANILA, Philippines—American banking giant Citigroup expects inflation in the Philippines to peak at 13-14 percent in the third quarter.

The bank also projects a slowdown in economic growth this year, as measured by the gross domestic product (GDP), to 5.1 percent from a 31-year-high 7.2 percent last year.

The government has a revised economic growth target of 5.5-6.4 percent.

Full-year inflation is expected to average 10.4 percent from 2.8 percent last year, Citigroup said in its global economic outlook report dated Aug. 20.

“Elevated food prices mean headline inflation could stay double-digit in the second half of the year and keep the tight monetary bias intact,” it said.

Inflation, as measured by the increase in the consumer price index, reached 12.2 percent in July, the fastest pace in 17 years, bringing the January-July average to 8.3 percent.

In June and July the central bank, targeting inflation in monetary policy decisions, jacked up its key interest rate, the overnight borrowing rate, by a total of 0.75 percentage point.

The central bank forecasts inflation at 9.0-11.0 percent this year.

Citigroup said, “Unless fiscal spending increases significantly, receding oil prices alone would not be sufficient to upgrade our GDP forecasts of 5.1 percent in 2008 and slightly below five percent in 2009.”

For next year, the bank sees GDP growth slowing down to 4.9 percent and the average inflation rate to 7.7 percent. Edited by INQUIRER.net