Govt allays inflation fears

THE government on Monday allayed inflation fears, saying prices should decline toward the latter part of the year to conform to the Bangko Sentral’s inflation expectations.

Dow Jones quoted Finance Secretary Cesar Purisima as saying in Washington that the economy would expand by between 5.5 and 6 percent this year, and that the peso would tend to strengthen on capital flows.

The central bank’s quarter-percentage-point increase in the benchmark overnight borrowing rate last month might be sufficient, Purisima, a member of the central bank’s policy-making Monetary Board, told the news service.

“The expectations of declining inflation rate towards the fourth quarter are consistent with our policy expectations,” central bank Governor Amando Tetangco Jr. said.

He said inflation should peak at over 5 percent before easing within the target range of 3 to 5 percent for the year.

“Inflation is not really getting out of hand… prices remain to be [under] control,” Tetangco said.

“But there remain upside risks of rising commodity prices for both oil and non-oil [products] especially food. There’s going to be an increase, but prices should decelerate towards the fourth quarter and the tapering off will continue in 2012,”

The inflation target for next year is also 3 to 5 percent.

Inflation settled at 4.3 percent in March, the same rate as in February, as the volatility in the global crude prices and the increases in the domestic prices of food products might have offset the price dampening effect of the peso’s appreciation against the dollar.

Inflation hit a nine-month high of 4.3 percent in February, led by higher crude oil prices amid the political unrest in the Middle East and North Africa.

The Monetary Board last month raised its policy rates by 25 basis points, to 4.25 percent for overnight borrowing and 6.25 percent for overnight lending, amid the rising inflationary pressures.

Tetangco said the move was preemptive to ensure inflation expectations remained within the target range.

“Going forward, we expect inflation to taper off, after possibly hitting a peak in either the second quarter or the third quarter,” Tetangco had said.

With the Bangko Sentral’s decision to raise its rates for the first time in 20 months, the bank forecast the 2012 full-year inflation to be closer to the lower end of the inflation target range of 3 to 5 percent.

Bangko Sentral Deputy Governor Diwa Guinigundo said earlier that if the Monetary Board had not adjusted its policy rates upward, inflation for the year could exceed the 3-to 5-percent target range.

The bank raised its crude oil price assumption to $100 to $110 a barrel in 2010 from its previous estimate of $85 to $95 a barrel.

Guinigundo said the Bangko Sentral acted to preempt the second-round effects of rising crude prices through higher wages and transport fares. –Elaine R. Alanguilan, Manila Standard with Bloomberg