Dec inflation seen to hit 3.5%

Inflation rate is expected to hit 3.5 percent this month as a result of the general increase in prices due to a holiday-induced increase in consumer spending, the Bangko Sentral ng Pilipinas (BSP) said yesterday.

BSP Governor Rafael B. Buenaventura said they expect inflation to range from three to 3.5 percent this month.

"That’s not a big jolt, though," Buenaventura said. "The whole-year inflation will still be well below our original projection of 4.5 percent to 5.5 percent."

The National Economic and Development Authority (NEDA) said the uptick in inflation was primarily caused by the increase in the prices of poultry and livestock products.

Socio-economic Planning Secretary Romulo Neri said it was normal for commodity prices to increase in December.

"But this year’s price pressures were aggravated by the drop in corn production due to adverse weather conditions," he added.

According to Neri, the urban centers were suffering from a short supply of poultry and livestock because commercial producers resorted to slaughtering their stock in anticipation of the shortage in corn which is used as feeds.

"The explanation given to us is that commercial livestock and poultry producers reduced their stock to only what they could fatten up for the holidays given the amount of feeds available," Neri explained.

The increase in the prices of poultry and livestock products, Neri said, contributed about 0.1 to 0.3 percentage points to the average inflation rate in December.

Poultry prices, in particular, surged from an average of P72 to P74 per kilo in November to as much as P130 per kilo this month.

Neri said the price increase in livestock was not as dramatic but the industry was also affected by the corn problem.

The BSP was already expecting inflation to remain benign, however, despite the mild fluctuations month-on-month.

The national average inflation rate is expected to remain benign until 2008, going up no higher than five percent in 2004 and 2005 before settling at three to four percent beginning in 2006.

The BSP said it was projecting a moderate rise in the headline inflation to four to five percent in the next two years but this would go down to as low as three percent average until 2009.

According to the BSP, the expected moderate increase in 2004 and 2005 reflected the impact of improved output growth and aggregate demand conditions as well as the expected cost-push impact of factors such as the volatility in oil prices.

At the same time, the BSP said the inflation outlook also considered the risks that stemmed from the financial market concerns over domestic political conditions in the run-up to the May 2004 elections that might influence the direction and movement of the peso-dollar exchange rate as well as other financial variables.

According to Buenaventura, all these factors coupled with the additional upside risks from the planned adjustments in import tariffs and utility charges are expected to create an upward pressure on consumer prices.

This year, the average national inflation rate is still way below the projected 4.5 to 5.5 percent inflation, due mostly to the slowdown in economic activities that normally creates an upward push on domestic prices.