Inflation seen slowing down in September

Inflation probably slowed in September to the lowest in more than a year on cheaper food and oil, Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr said yesterday.

"Inflation forecast for September is 6.6 percent to 7.1 percent," Tetangco said in a text message. "A mild deceleration is expected due to lower oil prices relative to August and lower food inflation." The inflation rate was last at 6.6 percent in July 2004.

The consumer price index rose 7.2 percent from a year earlier in August, following gains of 7.1 percent in July and 7.6 percent in June. The BSP predicts inflation will slow to 6.5 percent by the end of the year.

The BSP also said it will maintain its inflation targets of 7.9 percent for 2005 and 7.5 percent for 2006.

"A prolonged period of price increases creates the risk that the public will come to believe that inflation will continue to remain high for the foreseeable future and continue to exceed the government’s inflation target," the BSP said.

Lower inflation may give the BSP more room to keep its key interest rate unchanged, encouraging borrowing, spending and investment, and spurring economic growth.

The government is due to release this month’s inflation report next week.

Crude oil futures have fallen 6.2 percent from a record $70.85 per barrel on Aug. 30. The contract closed at $66.36 a barrel in after hours trading in New York. Lower oil prices may ease pressure on Philippine consumer prices.

"Risks are to the downside, and in any case, the headline inflation rate should start slowing in the months ahead," said John Cairns, head of research at IDEAglobal in Singapore, who expects a 7.1 percent inflation rate for September.

The central bank’s policy makers, who meet to set rates every four weeks, on Sept. 22 raised the benchmark rate by a quarter-point for a second time this year to 7.25 percent.

The rate was raised a quarter-point from a 13-year low on April 7, the first increase in more than four years.

Investors use the BSP’s rates as a guide when bidding at government auctions. The 91-day Treasury bill yield, the benchmark for banks’ lending rates, rose to 5.818 percent at this weeks’ government auction, the highest since July 11.

The Asian Development Bank (ADB) predicts the economy will expand 4.7 percent this year, less than the government’s forecast of 5.3 percent. The economy grew 6.1 percent in 2004, the highest in 15 years.