Inflation slows to 3.1% in 2002

Consumer prices rose by 2.6 percent in December, bringing the average inflation rate for the whole of 2002 at 3.1 percent, the National Statistics Office (NSO) reported yesterday.

The full-year figure was well below the official target of 4.5 percent to 5.5 percent.

The NSO said the 2002 annual average inflation rate of 3.1 percent was a dramatic improvement from the 6.1 percent recorded in 2001.

It also said the inflation rate in December was 0.1 percentage point higher than the November figure of 2.5 percent, which was a 15-year low.

Bangko Sentral ng Pilipinas (BSP) Governor Rafael Buenaventura, who had forecast December inflation at 2.1 to 2.4 percent, said it was within expectations and did not warrant a response in monetary policy.

"This is the first time inflation accelerated since August last year. This could mean that inflation may have hit the bottom in November at 2.5 percent, so we should slowly see an increase," said Jose Vistan, an economist at AB Capital.

"We are projecting inflation to inch higher to 4.5 percent for the full year this year," he added.

The government statistics office said that fuel, light and water prices rose 2.6 percent in December from a year earlier, compared with the 1.5-percent increase in November.

Food, beverage and tobacco prices rose 1.6 percent versus 1.4 percent in November.

The government, which hopes to prevent another series of budget deficit blowouts this year, expects the average inflation rate to climb to 4.5 to 5.5 percent in 2003 due to pressure on global oil prices from the threat of a US -led war on Iraq.

The Philippines imports all of its crude oil requirements.

Economists had expected inflation to be benign in 2002 as consumer demand weakened and the impact of the El Niño weather pattern and higher oil prices had yet to be felt.

They also said the BSP was unlikely to ease monetary policy soon to prop up the economy given the weaker peso and the expectation of rising inflationary pressures later this year.

"Inflation has not been the constraint," said David Cohen, an economist at MMS International.

"It’s been more the peso, which, in turn, has been impacted by the concerns about the fiscal problem. So the fact that this is a little bit higher is not going to be much trouble."

The BSP has kept its benchmark rates steady at 10-year lows since March 2002 but has said it may raise them in late 2003 if inflation jumps due to higher oil prices.

The overnight borrowing rate is now seven percent and the lending rate for banks is 9.25 percent.

"Even though the downtrend in inflation is expected to continue, concerns over peso stability are expected to prompt the (central bank) to leave interest rates unchanged for the time being," Charlie Lay, an economist at 4Cast Ltd, said in a note.