Nov inflation could exceed 5%, says BSP

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) believes average inflation this month could still breach the higher end of the full-year inflation target of three percent to five percent due to higher food prices brought about by the supply disruption caused by typhoons Pedring and Quiel as well as more expensive electricity costs.

BSP Governor Amando M. Tetangco Jr. said inflation could average between 4.5 percent and 5.4 percent for November but consumer prices for 2011 would still fall within the full year target.

“Although increases in electricity charges and the possible residual price impact on fruits and vegetables of the supply shock due to typhoons Pedring and Quiel could result in higher month-on-month inflation, the full year average inflation rate is expected to be well within the target for the year of three percent to five percent,” Tetangco stressed.

Latest data from the National Statistics Office (NSO) showed that inflation based on 2000-prices kicked up to 5.3 percent in October from 4.6 percent in September. This was the highest level since April of 2009 when inflation averaged 6.4 percent. Consumer prices averaged 4.5 percent in January to October, higher than the four-percent average in the same period last year.

Last Oct. 20, the BSP retained the central bank’s inflation forecast of 4.46 percent for this year but lowered the forecasts for 2012 to 3.05 percent from 3.4 percent and for 2013 to three percent from 3.23 percent due to the expected slowdown in global economic growth and the lower forecasts for petroleum prices to $94.5 per barrel from $104.75 per barrel for 2012 and to $92.82 per barrel instead of $102 per barrel for 2013.

During the meeting, the BSP has kept interest rates steady for the fourth consecutive policy rate-setting meeting since May amid the benign inflation outlook as well as the fragile global and domestic economic environment. The overnight borrowing rate is pegged at 4.50 percent while the overnight lending rate is at 6.50 percent.

The BSP raised interest rates by 25 basis points last March 24 and by another 25 basis points last May 5 as a preemptive move to keep inflation expectations well anchored amid the escalating price of oil in the world market.

The policy rate setting body, however, kept interest rates steady last June 16 and July 28 but raised the reserve requirement ratio for banks by a cumulative 200 basis points to 21 percent from 19 percent to siphon off P70 billion from the financial system and curb additional inflationary pressures arising from excess liquidity brought about by strong inflow of foreign capital.

Tetangco reiterated that manageable inflation is also expected over the 2012 to 2013 horizon amid major external developments in the US, Europe, Middle East, and China.

“The balance of risks to future inflation continues to be tilted slightly to the downside, which allows BSP some room for policy maneuver to address possible demand shocks from global developments, especially fragile markets in Europe, changes in political leadership in the Middle East, and signs of slower growth in China,” the BSP chief stressed.