December inflation rate falls to 6.6%

December inflation rate falls to 6.6%

Manila Standard Today
http://www.manilastandardtoday.com/?page=business02_jan06_2006
Jan 6, 2006
By Roderick T. dela Cruz

Headline inflation, or the rate of adjustment in consumer prices, eased to 6.6 percent in December 2005, the lowest in 16 months, as prices of food, clothing and services posted lower increases during the holidays.

The last time the 2000-based inflation rate hit 6.6 percent was in July 2004, before it accelerated to 6.8 percent in August and peaked at 8.6 percent in December of the same year. It stabilized at 7 to 7.1 percent in July to November 2005.

Month-on-month, inflation slowed to 0.3 percent in December from 0.8 percent in November, mainly because of lower increases in prices of services.

According to the National Statistics Office, the headline inflation rate averaged 7.6 percent year-on-year in 2005, higher than 6 percent registered in 2004 and the government’s original target range of 5 to 6 percent for 2005.

Encouraged by the recent easing of energy prices and the strengthening of the peso, the Development Budget and Coordination Committee (DBCC), an inter-agency economic planning body, set an inflation target of 4 to 5 percent for 2006 and 2007.

In December 2005, core inflation, which excludes volatile factors in food and energy prices, further decelerated to 5.8 percent from 6.1 percent in November. Core inflation averaged 7 percent in 12 months of 2005.

By area, headline inflation in Metro Manila eased to 7.4 percent in December from 8 percent in November while inflation in areas outside the metropolis slowed to 6.4 percent from 6.8 percent.

By commodity group, inflation for food, beverage and tobacco, moderated to 5.6 percent in December from 6.3 percent in November while the rate of price increase for clothing slowed to 3.1 percent from 3.2 percent.

Inflation for services also decelerated to 10.1 percent from 10.9 percent while prices of miscellaneous items registered a lower rate of increase at 3 percent in December, compared with the previous month’s 3.1 percent.

On the other hand, year-on-year inflation rates for housing and repair and fuel, light and water items were correspondingly higher at 4.2 percent and 14.8 percent from their respective previous month’s rates of 4.1 percent and 14.4 percent, respectively.

Despite the easing of inflationary pressures, the DBCC acknowledged that risks to inflation still remain, with the continued tightness in global oil reserves.

Both the Asian Development Bank and the United Nations Economic and Social Commission for Asia and the Pacific predicted that inflation would hit 7 percent in the Philippines in 2006, because global oil stocks are expected to remain tight.

Economists said among the internal risks to inflation this year are the planned 2-percentage point increase in the expanded value added tax rate, the possibility of second-round effects on wage-setting and the presence of ample liquidity in the financial system.