PH inflation seen to peak at 7% by late 2011

MANILA, Philippines—The rise in Philippine consumer prices is not likely to reach double-digit rates this year despite increasing oil prices because of ample food supply, according to Citigroup Global Markets Inc.

The brokerage and securities arm of Citigroup, in a research paper penned by Jun Trinidad, said a “lackluster” rise of food prices and ample local food supply would help ease oil price pressures.

“Inflation may peak at between 6.5 percent and 7 percent year on year,” Trinidad said. “An elevated inflation tax would dampen consumption but enhance fiscal revenues by 0.26 percent to 0.28 percent of gross domestic product.”

This means, Trinidad said, that the government is enjoying a windfall of tens of billions of pesos because rising oil prices are pushing up inflation which, in turn, drives up tax revenues.

“In our existing inflation forecasts, we assume a gradual drift of oil prices to $100 per barrel in the second half of 2011 and its second round price impacts that support higher [inflation hovering at 5 percent] in the year,” he said.

Trinidad said that, assuming that oil prices persist at $100 a barrel or more in the near term and the peso weakens to between P44 and P45 to the dollar, Citigroup’s forecast Philippine inflation of 4.8 percent this year may rev up by late in the second quarter to early in the third quarter.

Philippine inflation has “the potential for peaking at 6.5 percent to 7 percent later in the year,” he said.

In an interview, Finance Secretary Cesar V. Purisima said the country has a better inflation scenario than neighboring countries like Indonesia and Singapore.

“We face the same world and yet we’re better managing those things and we’re going to continue to work so at least from the food standpoint, we will be more secure,” Purisima said. “Maybe [we aren’t] not self-sufficient but [we are] secure [in food supply].”

Last week, the National Statistics Office (NSO) said inflation revved up to a nine-month high of 4.3 percent year on year in February, which was beyond the Bangko Sentral ng Pilipinas’ forecast range of 3 percent to 4.1 percent.