Inflation breaks out to 3-year high 8.3%

By Ruben Hortelano

05/07/2008

Galloping food and energy prices pushed the inflation rate in April to 8.3 percent, the highest level in three years, government data released yesterday showed.

The National Statistics Office (NSO) said “all the commodity groups at the national level continued to record higher annual price increases,” with the food sector alone posting a 12-percent inflation rate.

The April 2008 figure was the highest inflation rate recorded since May 2005 when inflation hit 8.5 percent, it said in a statement.

Share prices closed 0.9 percent lower on news of an inflation surge in April, dealers said.

Before the opening bell, the National Statistics Office released its April inflation report.

The composite index dropped 37.82 points to 2,727.70. The broader all-share index lost 17.92 points to 1,706.02 on 63 decliners, 20 gainers and 63 unchanged stocks.

A total of 1.3 billion shares worth P4.5 billion changed hands.

“With domestic corporations being sensitive to rising inputs, their inability to pass on these higher costs to their products or end-users will likely see its impact on lower earnings for 2008,” said Francisco Liboro of PCCI Securities.

“If the Central Bank is forced to raise interest rates, it will only exacerbate the situation because companies will eventually pass added costs to consumers. The purchasing power of the peso will dwindle,” said Jose Vistan of AB Capital Securities.

April’s rate far exceeded Bangko Sentral ng Pilipinas (BSP) forecasts of between 6.4 and 7 percent and economists’ previous estimates of about 6.8 percent. Inflation rose 6.4 percent in March.

The April figure brought the average inflation for the first four months of 2008 to 6.2 percent, far above the BSP’s full-year target range of between 3.0 and 5.0 percent.

Rice, the national staple, saw a 24.6-percent price rise in April with corn, other cereals and dairy products also incurring double-digit rates.

Excluding selected food and energy items, core inflation rose to 5.9 percent in April compared to 4.8 percent in March.

The country, one of the world’s largest rice importers, has been hit hard by worldwide rise in the price of rice.

BSP Gov. Amando Tetangco Jr. said the inflation rate in April was still within BSP projections for the month.

“The continued uptick was as projected although the magnitude was higher than expected,” he said through a text message from Madrid, Spain.

Tetangco said the price surge was “brought about primarily by increases in all commodity groups in the consumer price basket.”

As so called base effects dissipate and as measures to stabilize supply take root, we remain convinced that the price movements will revert to manageable levels over the policy horizon,” Tetangco said.

The base effect pertains to the moderating impact of previously high inflation rates to the current price of commodities and goods.

The BSP had kept its overnight borrowing rate at 5 percent and its lending rate at 7 percent last month, but it expected a future increase if commodity-fueled inflation spread to the broader economy, particularly through wage increases.

Since consumer prices in the first four months of 2008 have already risen 6.2 percent from the same year earlier period, analysts say the BSP’s full-year inflation target of 3 to 5 percent already appears to be blown out of the water.

Some economists have said the central bank may raise rates by 25 basis points at its next meeting on June 5, particularly if by doing so it can preempt a hefty wage increase. Labor negotiations may stretch into June.

Raising borrowing costs next month could, however, further crimp consumer demand and put the brakes down harder on an economy where growth is already expected to slow to 5.8 percent this year from a 31-year high of 7.3 percent last year.

Back to top

For comments about this website:Webmaster@tribune.net.ph
The Daily Tribune © 2006