US think-tank says Phl may breach inflation goal

MANILA, Philippines – New York-based think-tank Global Source Partners warned that the full-year inflation target of between three percent and five percent set by the Bangko Sentral ng Pilipinas (BSP) for this year could be breached due to the continued rise in global oil and food prices.

In a report, Global Source said average inflation in February exceeded the forecast range of between three percent and 4.1 percent set by the BSP.

Average inflation in February kicked up to a nine-month high of 4.3 percent from the revised 3.6 percent in January due to higher oil and food prices in the world market. Inflation averaged 3.9 percent in the first two months of the year from 4.2 percent in the same period last year.

Monetary authorities raised the central bank’s inflation forecast to 4.4 percent instead of 3.6 percent this year and to 3.5 percent instead of three percent for next year due to the continued rise in global oil and food prices. The BSP has set an inflation target of three percent to five percent between 2011 and 2014.

The think-tank pointed out that the 1.1 percent month-on-month uptick in inflation last month brought about by higher inflation for fuel, light, and water as well as food, and services was the sharpest monthly rise since early 2008.

The BSP last breached its inflation forecast when consumer prices averaged 9.3 percent in 2008, exceeding the full-year target of three percent to five percent due to the big surge in the international prices of oil and food.

Global Source said the BSP could raise its key policy rates by 25 basis points during its second policy setting meeting this year scheduled on March 24.

Earlier, BSP Governor Amando M. Tetangco Jr. signalled a possible rate hike as early as this month stating that the scope for keeping interest rates steady has narrowed.

“A rate hike seems even more likely now, with the central bank governor signaling monetary authorities’ readiness to raise policy rates by reiterating that the scope for keeping rates steady has narrowed. The emerging market view now is a 25 basis point hike during the next rate setting meeting on March 24,” Global Source added.

It pointed out that the Philippines is among the last in the region to normalize its monetary policy since the rates have been put on hold since July 2009.

“In our view, there is still a chance this may be put off until early May, though with a growing probability of a larger adjustment which could ruffle markets according to some fund managers we have talked to,” the think-tank said. –Lawrence Agaoili (The Philippine Star)