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Inflation surges to 3.9% in December

- Des Ferriols -

The nationwide inflation rate surged to a higher than expected 3.9 percent in December from 3.2 percent in November, pushed largely by rising food and oil prices.

“Last month’s inflation was driven mainly by supply shocks, including higher oil prices, tight food supply and costlier power and other utilities,” Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. told reporters.

The BSP had forecast an inflation rate of between 3.2 and 3.7 percent for December while economists had expected inflation to come in at 3.2 to 3.5 percent.

The December figures brought the full-year inflation rate for 2007 to an average of 2.8 percent, down from 6.2 percent in 2006, the National Statistics Office (NSO).

The 2007 average was well within the government’s target of four to five percent for the whole year and the central bank said it was not troubled by the uptick in inflation in December.

“With average inflation of 2.8 percent (in 2007) versus 2006’s 6.2 percent, we do not foresee a significant build-up in demand pressure,” Tetangco said.

“M3 (money supply) growth remains sufficiently prudent, while the firm peso is expected to cushion supply shocks and stabilize CPI (consumer price index) movement,” he said.

Consumer prices for the month rose to 0.8 percent compared to 0.6 percent in November, the NSO said. Inflation for fuel, light and water jumped to 5.3 percent from 2.3 percent in November.

Core inflation in December, which excludes selected food and energy items, rose to 2.6 percent from 2.3 percent in November.

“Prices rose in December because of higher energy costs and also partly from domestic demand,” said Frances Cheung, an analyst at Standard Chartered Bank in Hong Kong.

“The headline inflation is slightly higher than expectations but is not that alarming.”

She said with the inflation environment still benign amid expectations of a rate cut by the US Federal Reserve later this month, the local central bank still had room to cut its key rates.

“It will just be a matter of when the central bank will implement a rate cut in the first quarter. We see the bank trimming rates by 25 basis points,” said Cheung.

The country’s benign inflation rate allowed the central bank to cut key interest rates four times in 2007 — to their lowest levels in 15 years and policymakers are expected to continue bringing down rates this year.

Month-on—moth, consumer prices went up by 0.8 percent in December from 0.6 percent in November because of surges in the prices of food items specifically rice, milk and milk products, eggs, fruits and vegetables.

On the other hand, the NSO said higher annual price increments were noted in FBT items at 4.8 percent in December from 3.9 percent in November; fuel, light and water, 5.3 percent from 2.3 percent; and services 4.9 percent from 4.4 percent.

On the other hand, the NSO said the annual price additions in clothing items were slower at 1.6 percent from 1.9 percent while annual price gains in housing and repairs and miscellaneous items correspondingly remained at 1.1 percent and 1.3 percent.

The annual inflation rate for food alone at the national level picked up to 5.0 percent in December from 4.0 percent in November.

The NSO said all the food groups recorded higher annual inflation rates in December except for corn whose annual price increase was slower at 2.4 percent from 3.1 percent.

This year, the central bank said the inflation rate could go up to as high as five percent should oil prices linger at levels over $100 per barrel in the world market.

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BANGKO SENTRAL

BANK

FEDERAL RESERVE

FRANCES CHEUNG

GOVERNOR AMANDO M

INFLATION

RATE

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