Slower inflation seen despite dry spell

The Philippine central bank on Wednesday said that full-year inflation might come in lower than earlier forecast amid expectations of a moderate dry spell.

Coming from the lower-than-expected January inflation of 4.3 percent, manageable oil prices and the relative appreciation of the peso, inflation could be lower than the Bangko Sentral ng Pilipinas’ (BSP) official forecast of 3.4 percent to 4.5 percent for February, Deputy Governor Diwa Guinigundo said.

He said full-year inflation also may settle at 4 percent, or lower than the BSP’s earlier forecast of 4.7 percent.

“With El Niño moderate rather than mild we expect inflation to move up by 0.4-percentage point in 2010 and fade way in 2011 by 0.2-percentage point. Like any other supply shock it is not something permanent but a one-off effect, so by next year it starts to decline,” Guinigundo said on the sidelines of the Philippine Economic Briefing.

He said these figures are bound to change depending on the latest information available when the policy-making body Monetary Board meets on March 11.

If mitigating factors such as irrigation and timely importation of rice and other commodities happens, the country should withstand the increase in prices as a result of the El Niño phenomenon, the BSP official said.

“Just to bring home the point that given what happened in the first two months of 2009 and given the impact of moderate El Niño phenomenon, the inflation picture not only remains very manageable but very benign,” he said.

Despite the BSP’s assurances, the Department of Trade and Industry warned retailers who take advantage of the El Niño to jack up their prices.

Trade Secretary Peter Favila said the increase in chicken prices is unusual and suspicious since the farm gate price has fallen to P68 from P84 per kilogram previously.

“We will conduct [a] dialogue with the stakeholders, especially those retailers of chicken. In the event that they cannot give a justifiable cause as to why they have jacked up the price, we will have to impel them to follow and stick to the suggested retail price [SRP],” Favila said.

“The government is doing something to stem this problem. No one shall take advantage of the weather disturbance brought about by El Niño, and we are likewise looking at the behavior of the prices of other consumer goods,” he said.

Chicken now costs P150 to P170 per kilogram, surpassing the SRP the government issued.

Contrary to expectations, January inflation edged down to 4.3 percent, easing from the eight-month high of 4.4 percent in December. The January headline figure was also slightly below the 4.5 percent to 5.4-percent BSP forecast and sharply lower than the January 2008 price increment of 7.1 percent.

The central bank maintained that besides the modest improvement in domestic demand, large foreign exchange inflows—including remittances and foreign investments—will help stabilize the peso and, in the process, contain price pressures from imported commodities.

But the general trajectory of inflation has not changed as it will start to pick up in the second quarter and peak in the third quarter, Guinigundo said. –LAILANY P. GOMEZ Reporter with Katrina Mennen A. Valdez, Manila Times