Abrupt shocks could affect inflation - NEDA

MANILA, Philippines - The National Economic and Development Authority (NEDA) has warned that inflation could still be affected by abrupt shocks from rising oil and food prices as well as higher wages.

Socioeconomic Planning Secretary and NEDA director general Cayetano Paderanga Jr. said inflation, however, would still settle within the three to five percent target set under the Philippine Development Plan 2011-2016 despite the abrupt shocks.

“Even with this benign inflation outlook, the government should remain vigilant to abrupt shocks caused by weather-related disturbances as well as wage and oil price increases,” Paderanga stressed.

He pointed out that the Philippine Atmospheric, Geophysical and Astronomical Services Administration’s report that the country is currently experiencing weak to moderate La Niña weather phenomenom that would only dissipate between March and May this year.

Heavy rains caused by La Niña destroy major agricultural areas and infrastructure that subsequently lead to increasing food prices.

Furthermore, Paderanga added that adjustments in the international price of oil would continue to affect domestic prices when producers and distributors of goods and services use it as a primary input.

“While a weak external demand is being anticipated in 2012, oil prices are still expected to be higher than in 2011. This is due to geopolitical uncertainties in the Middle East, particularly caused by Iran’s threat to close the Strait of Hormuz in response to a possible European Union oil embargo,” he said.

He added that inflationary pressures from wage hike should also be expected as most wage orders were implemented in 2011 under the Labor Code of the Philippines.

The National Statistics Office (NSO) earlier reported that inflation eased to 3.9 percent in January from 4.2 percent in December.

Banko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said earlier that inflation last month was well within their forecast of 3.6 - 4.5 percent and shows that inflation is manageable.

“This supports our view that inflation remains manageable over the policy horizon, and affirms we continue to have policy space, should the need to support growth persist,” Tetangco stressed.

The central bank’s Monetary Board slashed interest rates by 25 basis points last Jan. 19 due to stable inflation and slower-than-expected economic growth. This brought the overnight borrowing rate to 4.25 percent and the overnight lending rate to 6.25 percent.

He pointed out that monetary authorities would continue to monitor developments in the domestic market, particularly the impact of weather disturbances in the Visayas.