Inflation seen to hit 7.3%-7.5% by December

Consumer prices are expected to rise further for the rest of the year, with the country’s inflation rate seen to hit 7.3 percent to 7.5 percent by December.

The Bangko Sentral ng Pilipinas (BSP) said yesterday its initial inflation projections for the last few months of the year indicated a continuing surge in domestic prices, due primarily to supply-side factors.

The inflation rate has already gone up to 6.9 percent in August and the mounting demand towards the December holidays was expected to add more pressure on domestic prices.

BSP sources said that based on 2000 prices, the upsurge would bring the December rate over the seven percent level and the average for the whole year would be higher than expected although still within the projected range.

The inflation rate based on 2000 prices already hit 6.6 percent in July, indicating that the rate could go up to as high as 7.1 percent using 2000 prices as the base.

The BSP said it was expecting even more surges in domestic prices for the rest of the year due to the combined impact of the increase in oil prices and tight supply of some agricultural products.

The BSP’s simulations indicated some upward momentum and the pass-on effect was expected to continue having an impact on domestic prices.

Tight food supply and rising service costs compounded the impact of rising oil prices, bringing the year-to-date average to 4.6 percent, approaching the high end of the four to five percent range projected for 2004.

With only four months to go in the year, this year’s full-year inflation rate is likely to overshoot government projections, especially with the historic increase in oil prices.

The BSP has already indicated that the national inflation rate could go up to as high as 6.7 percent this year but officials were not keen on changing its projections for this year.

Based on 2000 prices, the National Statistics Office (NSO) said the sharp jump in inflation rate was due mainly to the double-digit surge in services which increased by 10.8 percent in July.

Economic officials said hard times were still ahead, however, and prices were expected to surge further in the coming months due to the continued increase in the prices of oil and petroleum products in the world market.

According to Economic and Planning Secretary Romulo Neri, government will only review its inflation targets but it was likely that these numbers would stay.

"Higher oil prices will continue to impact on the prices of basic commodities and services in the succeeding months but I think if we will revise anything, it would begin with 2005 figures," Neri said.

However, Neri admitted that there was very little the government could do outside of long-term intervention that would improve production in food and services.

"These are all supply-side factors that we are seeing, demand-side factors are mostly tame," he said. "This means that monetary tools will be useless and tightening would only be counter-productive."