PHL inflation soars to highest level in nearly 3 years – PSA reports

By DANESSA O. RIVERA, GMA News

Published August 5, 2014 10:51am

(Updated 1:20 p.m.) Inflation quickened to its fastest in nearly three years as food prices spiked for and the cost of utilities contributed to overall price increases in July, the Philippine Statistics Authority (PSA) reported Friday.

Consumer prices accelerated by 4.9 percent in July from 4.4 percent in June, compared with 2.5 percent a year earlier, PSA data showed.

The July inflation also compares with 5.2 percent in October 2011, according to data from BPI Economics and Financial Markets Research.

"This was mainly due to the jump in the growth of the heavily-weighted food and non-alcoholic beverages index," the PSA said.

"Contributing also to the uptrend were the faster annual hikes in the indices of housing, water, electricity, gas and other fuels; health; transport; recreation and culture; and education," it added.

The July inflation was a surprise on the high side, Metropolitan Bank & Trust Company research head Ildemarc Bautista told GMA News Online. "This shows that the 5 percent upper-end target of government may be breached in the remaining months for the year."

Rice prices

Food was the main culprit for faster inflation, National Economic and Development Authority (NEDA) said in a statement. “Rice prices remained at high levels in July 2014 as supply tightness continued to persist in the market,” said Economic Planning Secretary Arsenio M. Balisacan, who is also the NEDA director-general.

Rice prices increased by 14.4 percent year-on-year, higher than the 13.6-percent increase in June, while corn prices rose by 7.8 percent compared with the 7.6 percent registered in the same comparable period.

Since June, the price of rice rose P2 per kilo in public markets and will normalize by September when farmers start to harvest, according to the National Food Authority.

Balisacan said NEDA still expects headline inflation for the full year to average around 4.4 percent.

The tightness in rice supply which drives up rice prices is expected to come to an end soon as supply has already been augmented by rice imports, the Cabinet official noted.

The Philippine government has allotted P10.3 billion ($236 million) to import half a million tons of rice via a tender rescheduled for later this month, Reuters reported.

Interest rates

Balisacan said the increase in interest rates enforced by the central bank will help temper inflation. “Such policy action by the Bangko Sentral ng Pilipinas is expected to put a brake on potential price pressures.

“The monetary authorities’ move to hike the policy rate was also in accordance with the BSP’s appreciation of the external environment, particularly monetary policy in advanced economies,” he added.

Last Thursday, Bangko Sentral raised its policy rates by 25 basis points from record lows as a preemptive response to signs of inflation pressures.

But the third quarter is the height of import season, and Bangko Sentral may likely increase key policy rates as well as the yield on special deposit accounts again later this year, Metrobank's Bautista said.

"If the BSP will hike key rates or SDA rates, it will strengthen the peso and help importers lessen import costs," he said.

"It will help curb pressures from the supply side and avoid second round effects," he added.

Utilities, education, health

The latest inflation rate brought the year-to-date average to 4.3 percent, still at the upper end of the government target of 3 to 5 percent.

The PSA said the food and non-alcoholic beverages index picked up by 8.2 percent in July, while the index for housing, water, electricity, gas and other fuels rose 2.4 percent.

A faster price increase was also seen in the health index, transport index, recreation and culture index, and education index, it added.

Last month, Manila Electric Company increased power rates by P0.03 per kilowatt hour following the temporary shutdown of several power plants that forced the company to buy electricity at a higher price from the spot market.

The Commission on Higher Education has allowed 171 colleges and universities nationwide to increase tuition fees in May which could still increase, and the Department of Education has allowed 1,299 private schools to increase tuition fees by five to 35 percent for the academic year 2014 to 2015. – VS, GMA News

Tags: inflation, inflationrate, psainflation, psareport