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NEWS UPDATES 7 July 2010

Philippine inflation at 7-month low

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CONSUMER price increases eased to a seven-month low in June despite costlier food and school tuition, the government reported Tuesday. The National Statistics Office (NSO) said inflation fell to 3.9 percent last month from 4.3 percent in May. A year ago, inflation stood at 1.5 percent.

The June inflation was a notch above the low-end forecast range of the Bangko Sentral ng Pilipinas (BSP), which earlier said price increases would average between 3.8 percent and 4.7 percent for the month.

Last month’s figure brought the six-month average inflation to 4.2 percent, still within the BSP full-year target range of 3.5 percent to 5.5 percent.

In a statement, Deputy Director General Augusto Santos of the National Economic and Development Authority (NEDA) attributed the decline in inflation to lower fuel and electricity prices.

Fuel and electricity prices declined in June compared to the previous month by 1 percent and 0.4 percent, respectively.


In a separate statement, the central bank said the drop in inflation was also a result of the deceleration in transportation and communication.

“This inflation path puts the full-year inflation targets for 2010 and 2011 fairly safe, and thus provides BSP flexibility when we review the stance of monetary policy on [July 15],” Governor Amando Tetangco said.


On June 3, monetary authorities had revised their baseline inflation forecast to 4.7 percent this year from an earlier 5.1 percent, and to 3.6 percent in 2011 from the original 3.7 percent as a result of lower energy prices and slower domestic liquidity growth.

In a research note, the Metropolitan Bank and Trust Co. revised its inflation outlook downward in light of recent developments.

The lender said its full-year forecast stands at 4.1 percent, lower than the previous 4.7 percent.

“The revision is still on the back of our expectations of low oil prices amid weaker demand from China and the US, and the recovery of domestic food supply amid the turnaround of the agri[culture] sector. Upside risk would come from the sustained increase in consumer spending, on the back of a more vibrant economy, that could cause supply disruptions in some sectors,” Pauline Revillas, Metrobank research analyst, said.

Revillas, however, said that a surge in foreign direct investment and portfolio inflows amid the probable improvement in the country’s business environment could inject more liquidity into the system, which could fuel inflationary pressures.

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