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NEWS UPDATES Asean Affairs       7  February 2011

Hike in 2011 Philippine inflation

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THE Bangko Sentral ng Pilipinas (BSP) said it may revise upward its inflation forecast for this year when the country's economic managers meet later this week for a review of macroeconomic assumptions. Inflation last month hit a four-month high of 3.5 percent, and hovered at the high-end of the BSP forecast range of 2.7 percent to 3.6 percent for January.

Higher inflation in January was traced mainly to higher prices of food and energy items. These in turn were linked to increased prices in the international market in the case of petroleum products, and the impact of domestic weather conditions in the case of food items such as fish and fruits and vegetables. Higher energy distribution costs also contributed to the higher inflation rate for the month. These factors represent supply-side pressures on prices which, if sustained, could subsequently trigger second-round effects on demand.

The BSP had said the current 3.6 percent forecast for 2011 might go up to a range of 3.8 to 4.2 percent if all the upside pressures on inflation materialized.

The central bank has kept policy rates at record lows of 4 percent for the overnight reverse repurchase rate and 6 percent for the overnight repurchase rate since July 2009. The interagency Development and Budget Coordination Committee (DBCC) is set to meet on February 11 to review the country's fiscal and macroeconomic assumptions after the economy performed better than expected in 2010.

At the same time, the country's economic managers will assess the likely impact of the sudden increases in commodity prices and determine whether they might serve a threat to the growth. The assumptions up for review include the P290-billion programmed budget deficit for 2011, the 7 to 8 percent gross domestic product (GDP) growth target, and the 3 to 5 percent inflation target. Likewise, the P940-billion and P320-billion collection targets of the Bureaus of Internal Revenue and of Customs would be reviewed.

A Department of Finance official said the DBCC will likely keep the P290-billion budget deficit program for this year, even though the government ended with a fiscal gap that was narrower than the P310-billion ceiling for last year.

Authorities also said the public-private partnership (PPP) scheme for infrastructure would generate new investments and jobs opportunities that will result in heightened economic activity.

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