MANILA, Philippines—Filipino households had to pay P14.30 more in May for the same amount of food that had cost them P100 in May last year, according to official inflation data released Thursday.

Food prices jumped 14.3 percent in May from May last year, after rising 12.0 percent in April from a year earlier, pushing the overall inflation rate to 9.6 percent, the highest in nine years, according to data from the National Statistics Office. Overall inflation was 8.3 percent in April.

Food accounts for about half of the basket of goods and services in the consumer price index, the main measure of inflation. The price of rice rose 31.7 percent in May from a year earlier, after a 24.6-percent jump in April.

For every 10-percent increase in food prices, about 2.3 million more Filipinos fall into poverty, according to a study by an Asian Development Bank economist. If the price of rice rises by 10 percent, expect 660,000 people to swell the ranks of the poor, ADB economist Hyun Son said in the study.

Inflation accelerated in various commodity groups. For food, beverage and tobacco, it reached 13.7 percent in May, compared with 11.4 percent in April. For fuel, light and water, it rose to 8.2 percent in May from 8.0 percent in April; for clothing, to 4.0 percent from 3.9 percent; for housing and repairs, to 4.0 percent from 3.8 percent; for services, to 7.8 percent from 6.9 percent; and for miscellaneous items, to 2.7 percent from 2.6 percent.

Core inflation, which excludes selected food and energy items, rose to 6.2 percent in May, compared with 5.9 percent in April.

Overall inflation in the January-May period averaged 6.9 percent, way above the government’s initial full-year target of 3.0-5.0 percent.

To combat inflation, the central bank, Bangko Sentral ng Pilipinas (BSP), on Thursday raised its benchmark interest rates by a quarter of a percentage point. The BSP overnight borrowing rate is now 5.25 percent and the overnight lending rate, 7.25 percent.

The BSP said it was willing to take further action when necessary to control inflation.

The surge in food and fuel prices sent the peso hurtling below 44 to the dollar, the lowest level since last October, prompting the BSP to intervene with dollar sales, currency traders said.

The stock market’s main index fell Thursday by nearly two percent.

The central bank, which aims its policies mainly at controlling inflation, had forecast the May inflation rate at 8.8-9.6 percent.

The BSP forecast full-year inflation at 7.0-9.0 percent in 2008 and 4.0-6.0 percent in 2009 if no action would be taken. “Policy measures undertaken now will help address risks to inflation in 2009,” it said.

Pressure expected to continue

David Mann, a senior strategist at Standard Chartered Bank, Hong Kong, said the increase in the BSP interest rates would “help the peso to some degree, but overall short-term negative pressure remains.”

Cayetano Paderanga Jr., an economist at the University of the Philippines, said it was too late to stop the inflation rate from crossing over into double-digit territory because it would take time for government measures—whether through economic pump-priming or by raising interest rates—to filter through the broader economy.

“The inflation rate will still go up before it goes down,” he said. “There is a very good chance that it will breach 10 percent, because it did not decelerate by much last month.”

An inflation rate of more than 10 percent will become increasingly difficult to control, said Paderanga, a former secretary of socioeconomic planning and former member of the BSP policymaking body, Monetary Board.

He said that without any confidence-building measures from authorities, the public would likely start anticipating price increases—and sellers will continue raising their prices and consumers will cut back on purchases.

“Ten percent is an important threshold,” he said. “Beyond this level, the psychology of the people changes and it becomes more difficult to control their expectations [of price increases].”

“The result of something like this is ‘stagflation,’ and that will be even more difficult to solve,” Paderangga said. The situation “could start feeding on itself,” he said.

Panderangga said it was “critical” for the government at this point to send a message that it would act decisively against the price uptrend.

The Department of Finance earlier announced that the government would spend P93.6 billion more this year than the original budget of P1.236 trillion to provide additional social services.

Finance Undersecretary Gil Beltran said an inter-agency body had approved a proposal for the government to spend P3 billion every quarter to provide fuel subsidy to the land public transport sector. The subsidy is likely to come in discounts on fuel purchases by drivers of publicly utility jeepneys and buses.

The plan is intended to keep jeepney drivers and operators from seeking another fare increase, he said.

Beltran said another P2 billion would be allocated for the “cash transfer” program, under which selected poor families shall be given allowance for health and education. The amount is good for six months, he said.

Malacañang has also announced that it would spend another P2 billion to grant subsidy to “lifeline users,” or households consuming less than 100 kilowatts of electricity a month.

Benjamin Diokno, an economist at the University of the Philippines and former secretary of the budget, noted that it would be the poorest of the poor that will bear the brunt of the effects of inflation.

“The hunger incidence could worsen,” he said, describing the food and rice inflation as “alarming.”

“I expect the surge to continue, with double-digit rates next few months,” Diokno said.

Oil prices

Some economists are hopeful that the slowdown in the US economy would help temper global demand for oil, thereby resulting in the easing of crude oil prices.

Oil companies in the Philippines were earlier reported as saying that the public could expect weekly increases of P1.50 per liter because of the unabated rise in prices abroad.

Imported oil accounts 35-40 percent of Philippine energy needs.

Victor Abola, an economist of the University of Asia and the Pacific, said the rise in global fuel prices was largely supply- rather than demand-driven. He said the restraint exercised by the biggest oil producers in using their spare capacity to produce oil was causing supply to fall short of demand, thereby pushing prices up.Michelle V. Remo, Daxim L. Lucas, Doris C. Dumlao; with a report from Reuters; edited by INQUIRER.net