Inflation slows to 6.7% in June

By Des Ferriols
The Philippine Star 07/06/2006

The nationwide inflation rate slowed to 6.7 percent in June from 6.9 percent in May as pricing pressures eased in almost all key commodities, the National Statistics Office (NSO) reported yesterday.

The figure was at the lower end of the Bangko Sentral ng Pilipinas’ (BSP) forecast range of 6.5 to 7.2 percent for the month and was also sharply lower than the 7.6-percent inflation rate in the same month last year.

For the first half of the year, inflation averaged at 7.1 percent. Core inflation, which excludes selected food and energy prices, eased to 5.8 percent in June from 6.1 percent in May.

"The deceleration from May is consistent with the projected downtrend in inflation and provides support to the recent decision of the Monetary Board to maintain the policy rates," BSP Governor Amando M. Tetangco Jr. said.

Last week, the BSP kept its key overnight rates unchanged for the ninth straight time since October 2005. Its overnight borrowing rate remains at 7.50 percent and its overnight lending rate at 9.75 percent.

Tetangco said prices are still increasing, but not as much as they did earlier in the year and pressures are likely to ease further in the second half.

"The June inflation rate is closer to the lower end of our forecast range for the month," he said. "It provides support to the recent decision of the Monetary Board to maintain policy rates."

The BSP said core inflation and other recent data continue to paint a scenario of limited demand-based pressures while latest BSP forecasts remained suggestive of decelerating inflation in the second half.

However, the BSP cautioned that the balance of risks to inflation was still shifting upwards, tracking the movement in oil prices and the possible adjustment in domestic power costs.

"In the near term, the current high oil price environment is likely to be sustained given a tight demand-supply balance in the international oil market," Tetangco said. Along with likely adjustments in domestic power costs, Tetangco said this pointed to a continuing environment of supply-side pressures.

"Such a prospect increases the risks to inflation expectations and the likelihood of second-round effects, particularly on wage-setting," he said.

Tetangco said the Monetary Board saw that the recent increase in oil prices had tilted the balance upwards and the prospect of continued oil price increases were building up supply-side pressures.

"Managing expectations as well as the risk of potential second-round effects in wage and price-setting thus remains the key policy priority," he said.

Easing inflation concerns could help keep interest rates steady but other factors may come into play, an analyst warned.

"The data in June gives the central bank a lot of leeway to maintain its rates but that is not the only factor to consider," said Jonathan Ravelas of Banco de Oro Universal Bank. – With AFP reports

 

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