January inflation holds near 17-month low, helps keep rates steady

Business Mirror

Feb 8, 2006

 

January inflation holds near 17-month low, helps keep rates steady

PHILIPPINE inflation held near a 17-month low in January as oil price increases eased, giving the central bank room to keep its key interest rate steady.

The consumer price index rose 6.7 percent from a year earlier after a 6.6-percent gain in December, the National Statistics Office said Tuesday in Manila . The inflation rate in December was the lowest since July 2004. 

SOCIOECONOMIC Planning Secretary Augusto Santos said that the January inflation rate of 6.7 percent was primarily driven by services and miscellaneous items.

He noted that prices of food, beverage and tobacco (FBT), indicators of the core inflation, eased to 5.6 percent from 7.4 percent in 2005. Core inflation rate also slowed down to 5.5 percent from 5.8 percent in December.

Inflation rates for services and miscel-laneous items, which went up to 10.3 percent and 3.1 percent, respectively, contributed to the increase in January figures.

"This means that current inflation is mainly driven by sudden price increase in noncore inflation items such as rentals, and personal and recreational services," Santos said.

Santos , also the head of the National Economic and Development Authority (Neda), said that prices of flour and flour products raised the index for cereal preparations.

He attributed the rise in prices of fish in most of the regions including NCR to limited supply. "On the other hand, upward adjustments in the prices of sugar contributed largely to the uptrend in the inflation rate for miscellaneous food."

"The moderate pace of inflation, together with a firmer peso, will allow the central bank to remain on hold during its next meeting on Thursday," said
David Cohen, director of Asian forecasting at Action Economics in Singapore , who accurately predicted last month's inflation rate.

Bangko Sentral ng Pilipinas expects inflation to ease in the second half of this year after accelerating in the first six months, Governor Amando Tetangco said on January 27. That may allow the central bank to keep borrowing costs unchanged, boosting investment and spending in an $85-billion economy that President Arroyo's government expects will grow by as much as 6.3 percent this year from 5.1 percent in 2005.

Fuel costs increased 13.5 percent in January from a year earlier, slower than December's 14.8-percent gain, Tuesday's report showed. Crude oil for March delivery fell as much as 36 cents, or 0.6 percent, to $64.75 a barrel in electronic after-hours trading on the New York Mercantile Exchange.

The contract traded $64.87 at 10:05 a.m. Singapore time, which was 8.4 percent less than the record $70.85 on August 30, the day after Hurricane Katrina struck the Gulf of Mexico coast.

Last month's inflation rate was less than the central Bank's forecast of as much as 7.1 percent and higher than the 6.4-percent median forecast of nine economists in a Bloomberg survey. Tetangco said last week there was no need for the Philippines to match the US Federal Reserve's January 31 quarter-point increase in its benchmark interest rate to 4.5 percent because of the expected lower inflation in July through December. Bloomberg

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