Power rate hikes fuel fastest rise in inflation

INFLATION accelerated to the fastest pace in 26 months in June after utility and transport costs rose.

Consumer prices increased 5.2 percent that month from a year earlier, the biggest gain since April 2009, according to data released by the National Statistics Office Tuesday, using 2006 as a base year.

Inflation was 4.6 percent using 2000 as a base year. The central bank said this was still at the lower end of its forecast range for the month of 4.6 percent to 5.5 percent.

Bangko Sentral Governor Amado Tetangco said the government would ensure that inflation was kept at “low and stable levels.”

“Price pressures are on the rise, suggesting second-round effects of commodity prices are gathering momentum helped by resilient domestic consumption,” said Radhika Rao, an economist at Forecast Pte in Singapore.

“There will be some form of tightening at the July meeting, though it would be a very close call between a rate or a reserve-requirement hike.”

But economist Benjamin Diokno said the latest data should convince the central bank to keep policy interest rates unchanged in the meantime.

“With a tight fiscal policy, a relatively accommodative monetary policy is still needed to provide support to a weak economy,” Diokno said.

Benchmark five-year bonds fell, snapping a five-day rally. The peso weakened for the first time in six days to 43.088 per dollar at the noon trading break in Manila.

The central bank would gauge in the coming weeks whether it needed to further raise banks’ reserve requirement or increase the benchmark policy rate, Deputy Governor Diwa Guinigundo said Monday.

The central bank ordered lenders to set aside more money as reserves and held its benchmark interest rate at 4.5 percent last month after raising it twice this year. Policymakers next meet on July 28 to decide on interest rates.

The Philippines’ $161-billion economy expanded 4.9 percent in the second quarter, the weakest pace since 2009.

Housing, fuel, electricity and water prices climbed 5.8 percent in June after a 5-percent gain in May, based on 2006 prices, Tuesday’s report showed. Transport costs rose 6.8 percent, up from 6.6 percent in May. –Elaine R. Alanguilan, Manila Standard Today with Bloomberg