RP inflation to hit 6.8% this year, says EIU

The Economist Intelligence Unit (EIU) has revised upward its 2008 inflation forecast for the Philippines to 6.8 percent from 5.8 percent previously.

This is higher than the Bangko Sentral ng Pilipinas (BSP) forecast of 5.5 percent to 6.5 percent.

“In view of the latest consumer price inflation data, the Economist Intelligence Unit has revised up its inflation forecast for 2008 to 6.8 percent, from 5.8 percent previously,” said the EIU.

The EIU, which is part of the Economist Group, provides research and analysis on various countries.

In its latest report on the Philippines, the EIU said the main risk to inflation is the potential for an inflationary wage-price spiral, caused by workers demanding higher wages.

Inflation or the rise in consumer prices has been going up due to skyrocketing oil and food prices.

The National Statistics Office (NSO) reported yesterday that Philippine inflation rose 8.3 percent year-on-year in April, the highest level since 2005. The latest figure is also well above expectations of seven percent and up from the previous month’s inflation rate of 6.4 percent due mainly to rising food prices.

Within the food component, the price of rice, a staple in the Philippines, soared in April by nearly 25 percent from a year ago, government data showed.

Inflation for food rose to 11.4 percent in April from 8.2 percent in March; clothing, 3.9 percent from 3.6 percent; housing and repairs, 3.8 percent from 3.1percent; fuel, light and water, eight percent from 6.2 percent; services, 6.9 percent from 6.4 percent; and miscellaneous items, 2.6 percent from 2.4 percent.

Oil prices, meanwhile, have risen by a total of P5.50 per liter over the past six weeks.

On the foreign exchange side, the EIU said the currency will average P42.4 to the dollar this year, due to buoyant remittances from overseas Filipino workers.

In terms of economic growth, the EIU said that the Philippine economy is likely to remain strong this year, forecasting GDP growth to average 5.7 percent.

“The main engine of growth will be private consumption. This will continue to be supported by inflows of remittances, which are experiencing strong growth owing  to  the  large number of Filipinos working overseas. Investment is expected to record respectable growth over the outlook period, reflecting a number of factors, including higher government spending, lower interest rates and an improvement in banks’ balance sheets, which should increase their willingness to lend,” the EIU said.

The official GDP forecast for 2008 has been revised to a range of 5.7 percent to 6.5 percent from 6.3 percent to seven percent due to skyrocketing oil and food prices.