Full-year inflation of 3.2% lowest in 5 yrs

MANILA, Philippines - The nationwide inflation rate edged up to 2.9 percent in December, bringing the full year average to its lowest level in five years at 3.2 percent, the National Statistics Office (NSO) reported yesterday.

The December result was within the  BSP’s  forecast range of 2.6 percent to 3.5 percent for the month. The full year figure, on the other hand, hit BSP’s revised  2012 outlook of 3.2 percent and fell within the official target of three  percent  to five percent.  The full year figure was also the lowest rate since  the  2.9 percent recorded in 2007.

 â€œThis supports our outlook that inflation is manageable. The risks to inflation over the policy horizon remain fairly balanced,” BSP Governor Amando Tetangco Jr. said in a text message to reporters.

 â€œThis, together with the expectation that real GDP (gross domestic product) growth would continue to be strong, suggests our current policy settings are appropriate,” he added.

 â€œWe would continue to review our policy rate settings, and see if there is a need to put in place other macroprudential measures to ensure price and financial stability,” he said.

Policy rates – which serve as benchmark for banks in pricing their loans – were slashed by a cumulative 100 basis points last year, bringing them to record lows  of 3.5 percent for overnight borrowing and 5.5 percent for overnight lending.

This has allowed banks to extend more loans at cheaper costs, Tetangco said in a speech last Thursday, thereby supporting domestic investment and consumption  which boost economic activity.

Economic growth hit 6.5 percent as of the third quarter, already beating the official five  to six percent target last year. Despite this, Tetangco said inflation remained benign and is likely to do so this year.

For December alone, the government statistics office  said only prices of food, tobacco, alcoholic and non-alcoholic beverages experienced faster upticks compared to previous month. Other indices reported slower or similar price increases.

Excluding food and oil prices, core inflation eased to 3.3 percent in December from 3.4 percent in November, data showed. For the whole of 2012, prices slowed to 3.7 percent from 4.3 percent in 2011.

Consumer prices in the National Capital Region rose by a slower 2.9 percent last year, compared with the rest of the country, at 3.2 percent, the NSO further said.

Commenting on the inflation results, Prakriti Sofat, regional economist at Barclays, said  the central bank may opt to keep policy rates this year as “robust growth through 2012 suggests potential inflation risks ahead.”

DBS economist Eugene Leow, in an e-mail, agreed: “With growth still robust, inflationary pressures could materialize in the later half of this year.”