Philippine central bank sees Q3 inflation peak

MANILA : The Philippine central bank expects inflation to peak in the September quarter, central bank Deputy Governor Di

Published July 10, 2011 Updated July 10, 2011 11:34am

2 min

Comments

By Shoaib Ur Rehman

Add BRecorder as a trusted
source on Google

Guinigundo also said the central bank's inflation target of 3-5 percent this year need not be revised despite the rebasing of the consumer price index series to reflect 2006 base prices from the old 2000 base year.

"It will peak this quarter," Guinigundo told reporters over the weekend when asked about inflation. "It could be base effect, they say cost of electricity will go down, but cost of gas can still go up because of the increase in petroleum prices."

"It is very difficult to rule out further shocks, and therefore potential for tightening. Because the upward risks are still dominant," he said.

Policymakers previously said inflation may peak in the third or fourth quarters.

Guinigundo said while upside risks were still dominant, the inflation trajectory was coming down, although he warned that "anything can happen" as oil-importing Philippines is sensitive to volatilities in petroleum prices.

Annual headline inflation in June was 4.6 percent, the highest since April 2009 but below market forecasts and at the bottom end of a central bank estimate, bringing the average to 4.3 percent in the first half of 2011, based on 2000 prices.

The new series based on 2006 prices, released for the first time on Tuesday, showed annual inflation at 5.2 percent against May's 5.0 percent, with the first-half average of 4.7 percent near the upper end of the central bank's target this year.

Guinigundo said the rebasing of the inflation data may push the actual inflation rate higher on the first year.

"But regardless of the bias, inflation rate should ideally be 3 to 5 percent given our circumstances. So using any base year, because what we are talking about is percentage change, it will still be 3 to 5 percent," he said.

The central bank surprised markets last month when it kept the policy rate steady at a two-year high of 4.5 percent but raised banks' reserve requirements by one percentage point to dampen liquidity pressures from strong capital inflows.

Analysts expect the central bank to follow up with another percentage point increase in banks' required reserves to 21 percent, the level before the global financial crisis, before it resumes raising interest rates. The next policy meeting is on July 28.

Read Comments