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September 6, 2008

Philippine inflation seen cooling  after hitting 17-year high
Philippine annual inflation hit another near 17-year high of 12.5 percent in August but the central bank said price pressures may have peaked, signalling its tightening campaign could be drawing to a close, Reuters reported.

The figure matched market consensus, coming at the high end of the central bank's 11.8-12.6 percent forecast range and up from July's revised 12.3 percent, data showed on Friday.

However, the monthly pace of price increases slowed sharply to 0.3 percent from 1.6 percent in July as food costs, which have climbed at a red-hot rate this year on fears of rice shortages, stayed level and the pace of fuel price increases slowed.

"We are seeing moderation in prices, if this continues obviously inflation will slow down," Governor Amando Tetangco said on Friday, commenting on the data.

"Central bank will watch this closely to see if the slowdown would continue and be more generalised. A reversal in the downtrend of oil prices remains the biggest risk to the inflation outlook," he told reporters.

Tetangco said he was not ruling out that inflation had already peaked last month. The central bank had earlier predicted consumer price growth would peak in September or October.

The central bank will have September inflation data before its next rate decision on October 9 and many analysts said the monetary authority may raise rates for a fourth and final time next month to bolster the weakening peso and because domestic inflationary pressures are still prevalent.

"The headline rate remains high, I think we may see another 25 basis point hike in October," said Simon Wong, economist with Standard Chartered Bank. "After October, the central bank will put rates on hold."

The Philippine central bank has raised rates by 1 percentage point so far this year in three consecutive moves.

Core inflation, which strips out some volatile food and energy items, climbed to an annual 7.0 percent in August from 6.3 percent in July, also convincing some analysts that another rate rise was on the cards.

"There is a very tight relationship between inflation in the Philippines and energy and commodity prices," said Sin Beng Ong, economist with JP Morgan. "So when you see oil crash like that, that means inflationary pressures are actually a lot lower going forward."

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