RICE PRICE UP 25%, April inflation hits 3-year high of 8.3%

May 6, 2008

by MAX ESTAYO: Inflation climbed to its fastest clip in April to a near three-year high, rising by 8.3 percent from a year ago, due to sharp increase in rice prices, the government said yesterday.

The higher than expected increase in prices is putting pressure on the central bank to raise borrowing costs despite the threat that could pose to economic growth.

The price of rice soared in April by nearly 25 percent from a year ago. Overall food prices rose 12 percent.

The April inflation exceeded the Bangko Sentral ng Pilipinas forecast for the month of 6.4 percent to 7 percent and jumped from 6.4 percent in March and 2.3 percent last year.

The last time inflation was at this level, at 8.5 percent, was in May 2005, the April level brought average inflation for the first four months to 6.2 percent, blowing out of the water BSP target for the year of three to five percent.

“The continued uptick was as projected, although the magnitude was higher than expected,” BSP governor Amando Tetangco Jr. said.

In April, core inflation, which excludes food and energy items, also picked up to 5.9 percent from 4.8 percent a month earlier, indicating demand factors were also starting to push inflation.

Tetangco said the BSP expects pressures to taper in the next 15-21 months.

The BSP’s key overnight rates were left steady at five percent and seven percent, respectively at the last policy meeting on April 24, amidst expectations authorities will eventually lift rates by the second half of the year to temper inflation.

“This is an upside surprise certainly and there might be more in store,” said Frederic Neumann, an economist at HSBC, who expects the central bank to raise interest rates by a total of 75 basis points this year.

“We have always said that inflation might peak at above 9 percent this year. So, we are well on track for that.”

The peso was quoted at 42.30 against the dollar, slightly weaker than Monday’s close at 42.23 while the main stock index was down 0.79 percent.

The monetary authority is closely monitoring negotiations to raise the minimum daily wage and has warned that a rise of more than P25 ($0.59) could force it to reassess its inflation forecast.

Some economists have said the central bank may raise rates by 25 basis points at its next meeting on June 5, particularly if by doing so it can pre-empt a hefty wage increase. Labor negotiations may stretch into June.

Raising borrowing costs next month could, however, further crimp consumer demand and put the brakes down harder on an economy where growth is already expected to slow to 5.8 percent this year from a 31-year high of 7.3 percent last year.

“The elevated prices of oil and non-oil goods continue to pose challenges for policy makers, although for some commodities, supply responses, that is higher production, should eventually temper the price spikes,” Tetangco said.

“As base effects dissipate and as measures to stabilize supply take root, we remain convinced that price movements will revert to manageable levels over the policy horizon. We will, however, continue to closely monitor developments for any second-round pricing pressures and will act decisively to ensure that inflation expectations would remain well-anchored,” he added.

In April, inflation for food, beverage and tobacco – which make up half of the inflation basket – grew by 11.4 percent from last year and compared to 8.2 percent in March, the National Statistics Office said.

Inflation for food climbed to 12 percent from 8.4 percent in March, with price of rice, which is more than nine percent of the inflation basket, picking up by a hefty 24.6 percent during the month from last year compared to 10.9 percent in March, the agency said.

The other commodities in the inflation basket also posted increases, the NSO said. Inflation for clothing rose to 3.9 percent from 3.6 percent in March; housing and repairs to 3.8 percent from 3.1 percent; fuel, light and water to eight percent from 6.2 percent; services to 6.9 percent from 6.4 percent; and miscellaneous items to 2.6 percent from 2.4 percent.

source: http://www.malaya.com.ph/may07/busi1.htm

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