April inflation surges to 12-month high

Protesters rally in front of the Shell oil company, one of the big three oil players in the country, to protest another round of oil price increases in Manila on April 12, 2011. Oil companies raised pumped prices of gasoline and diesel fuels following increase of oil prices in the world market driven by the political upheaval in the Middle East. AFP PHOTO / JAY DIRECTO

MANILA, Philippines—Prices of local goods and services rose faster than expected in April, prompting the Bangko Sentral ng Pilipinas to raise borrowing costs in an attempt to squelch inflationary pressures.

Government data released Thursday showed that the inflation rate hit a 12-month high of 4.5 percent last month, mainly due to higher prices in most commodity groups.

The latest inflation rate matches the level recorded in April 2010, and puts the average for the first four months of 2011 at 4.2 percent.

Because of this, the central bank on Thursday raised its short-term borrowing cost by 25 basis points to 4.5 percent, following a similar increase in March.

Higher interest rates temper demand for loans, consumer spending and encouraging savings.

The BSP hopes that its monetary policy tightening will ease demand for goods and services, and thus cap consumer price increases.

The government wants to limit inflation within a range of 3 to 5 percent for this year and next.

“In deciding to increase policy rates anew, the Monetary Board noted that the latest baseline inflation forecasts continue to suggest that the 3-5 percent inflation target for 2011 remains at risk, mainly as a result of expected pressures from oil prices,” BSP Governor Amando Tetangco Jr. said during a press conference immediately after Thursday’s Monetary Board meeting.

Tetangco acknowledged that the buildup of price pressures was driven largely by an external factor—the rising price of oil in the global market—to which the Philippines is vulnerable.

In April, faster price hikes were observed in five of six commodity groups covered in the index, except for the heavily weighted food, beverage and tobacco (FBT) sector, which registered a 4.2 percent rate from the previous month’s 4.4 percent.

The biggest price increases were seen in fuel, light and water, or FLW, (8.8 percent from 7.7 percent) and services (6.5 percent from 5.7 percent).

Price increments also rose for clothing (1.9 percent from 1.8 percent), housing and repairs (2.2 percent from 2.1 percent) and miscellaneous goods (1.2 percent from 1.1 percent).

According to NSO administrator Carmelita N. Ericta, only the annual inflation rate for food eased to 4.3 percent from the previous month’s 4.5 percent.