Inflation seen hitting 3.8% due to floods

A Filipino vendor walks barefoot as he pushes a cart full of his wares covered with a plastic sheet in suburban San Mateo, Rizal Province, east of Manila, on Tuesday, Aug. 14, 2012. The Bangko Sentral ng Pilipinas said Tuesday, Aug. 28, 2012, that inflation could hit as much as 3.8 percent in August as the recent floods temporarily disrupted food supply. AP PHOTO/AARON FAVILA

MANILA, Philippines—The Bangko Sentral ng Pilipinas said Tuesday that inflation could hit as much as 3.8 percent in August as the recent floods temporarily disrupted food supply.

Citing latest estimates by the central bank, BSP Governor Amando Tetangco Jr. said inflation could range between 2.9 and 3.8 percent in August.

The forecast takes into account the adverse impact on prices of the heavy rains, the increase in utility rates, and the depreciation of the peso, on one hand, and the positive effect of a healthy supply of other goods, on the other.

The peso is expected to average in the 42-to-a-dollar territory in August after strengthening to the 41 level and averaging at 41.98 in July partly because of measures implemented by the BSP against speculation. The BSP also was intervening in the foreign exchange market by buying dollars to temper the rise of the peso, as officials said any sharp and sudden volatility—whether appreciation or depreciation—is bad for the economy.

The higher end of the inflation forecast for August is higher than the 3.2 percent registered in July and the average of 3.1 percent for the first seven months of the year.

Nonetheless, it is still way lower than the 5.1 percent registered in August last year.

Should the central bank’s forecast materialize, inflation for the first eight months will average between 3 and 3.2 percent. This keeps the 3- to 5-percent target average for the year attainable, Tetangco said.

“Due to monsoon floods, increases in utility rates and the peso depreciation could somewhat tip august inflation higher,” Tetangco said Tuesday in a text message to reporters.

The central bank chief said the impact of heavy rains on overall consumer prices is expected to be short-lived.

“Our expectation is that, as in the past, price increases in selected vegetables and fish as a result of supply disruptions from natural calamities would be temporary. Our assessment continues to be that average inflation for 2012 and 2013 would fall within the lower half our target range over the policy horizon of 3 to 5 percent,” Tetangco said.

Despite this projection, he said, the BSP continues to monitor developments in the domestic economy and the global front to update inflation outlook.

He said the BSP is ready to implement measures, such as tweaking of interest rates and managing growth in bank loans, against significant price pressures to help ensure inflation will remain within target.

“We will make adjustments to policy stance and adopt prudential measures, as appropriate, to ensure our inflation target is protected,” Tetangco said.

The relatively benign inflation is one of the favorable macroeconomic fundamentals that officials claimed to be an upside for investors to do business in the Philippines.