July inflation slows down to 30-month low of 2.6%

Consumer prices declined to their lowest level in two and a half years at 2.6 percent in July, mainly due to the drop in electricity bills after President Arroyo ordered a cut in purchased power adjustment (PPA) charges, the National Statistics Office (NSO) reported yesterday.

The NSO said the inflation rate of 2.6 percent was the lowest rate recorded since February 2000.

From January to July, the inflation rate — the rate of increase in the prices of basic necessities — averaged 3.4 percent, well-under the revised full-year target range of 4.5 to 5.5 percent.

"Based on the average inflation rate so far this year, the average inflation for 2002 is most likely to hit 3.2 percent to 5.3 percent, barring further unexpected shocks," Economic Planning Secretary Dante Canlas said in a statement.

The inflation rate has been declining since the beginning of the year, going up to only 3.6 percent in April and May before slowing down to three percent in June.

Monetary authorities had expected the inflation rate be in the region of 2.8 to 3.3 percent but government economists did not expect it go as low as 2.6 percent.

Bangko Sentral ng Pilipinas (BSP) Governor Rafael Buenaventura said the slowdown in the inflation rate was welcome news and did not necessarily mean weaker consumer spending because there was still growth in the domestic economy.

"As long as there is still growth in (gross domestic product), declining inflation would not be a cause for worry," Buenaventura said, referring to the total products and services produced by the economy minus revenues from overseas.

Besides, Buenaventura said, if domestic production slows further during the second semester, the BSP may cut interest rates to encourage business expansion.

According to the National Economic and Development Authority (NEDA), the 2.6 percent inflation rate was mainly due to the 3.9 percent cut in electricity bills as a result of the reduction in PPA charges.

Domestic fuel prices also declined by 36 centavos per liter, bringing down fuel prices by three percent.

Higher food prices

Food prices, on the other hand, were higher from the previous month as recent typhoons disrupted the supply of necessities. Prices of rice, eggs, fish, fruits and vegetables and miscellaneous items were all up from a month ago, the NEDA said.

Prices in Metro Manila went down to 2.9 percent in July from 3.7 percent in June as prices of all commodity groups, except miscellaneous items, declined.

In the provinces, inflation slid to 2.5 percent from 2.6 percent due to the drop in the prices of food, beverage and tobacco, fuel, light and water and services.