Inflation slows to 6.9% with strong peso

this story was taken from www.inq7money.net
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Posted: 2:11 AM | Jun. 07, 2006
Michelle V. Remo
Inquirer

INFLATION eased further to 6.9 percent year-on-year in May, the lowest in four months, as a strengthened peso helped temper the effects of the increased value-added tax on prices of consumer products, an official said Tuesday.

The inflation rate, which the National Economic and Development Authority (NEDA) had forecast at 7.0-7.3 percent, decelerated from 7.1 percent in April and 7.6 percent in February and March, and from 8.5 percent in May 2005.

It brought the January-May average to 7.2 percent.

"This is better than our expectations," said Dennis Arroyo, NEDA director for policy and planning. "This will help us meet, if not surpass, our inflation target for the full year of 7.3 to 7.9 percent

The National Statistics Office said prices of nearly all commodity groups showed slower increases in May than in previous months. Only clothing and services were the exception, it said.

The NSO said the inflation rate for the food, beverage and tobacco group was 5.9 percent in May, compared with 6.1 percent in April. Prices of housing and repair rose 4.0 percent, compared with 4.2 percent the month before. Fuel, light and water slackened to 13.4 percent from 15.9 percent, and miscellaneous items slowed to 3.1 percent from 3.3 percent.

Clothing and services accelerated to 3.2 percent and 11.1 percent, respectively, in May from 3.1 percent and 10.6 percent in April.

Core inflation, which does not include prices of food and energy, slowed down to 6.1 percent in May from 6.3 percent in April.

The slowdown in inflation came despite effects of the increase in the value-added tax (VAT) in February to 12 percent from 10 percent. The tax was expanded in November to include energy.

Arroyo said the appreciation of the peso was a major reason inflation fell below expectations despite the impact of the VAT on consumer prices.

He noted that the peso averaged 52.07 to the dollar in May, compared with 54.34 to the dollar a year earlier. With INQ7.net