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By Darwin G. Amojelar,
Reporter
A scenario of high oil prices
would push up inflation to nearly double-digit and weaken economic
growth this year, the National Economic and Development Authority (NEDA)
warned on Monday.
Acting Socioeconomic Planning
Secretary Augusto Santos said that based on the agency’s
simulation, an average price of $200 a barrel of Dubai crude will
cause an inflation rate of 9.3 percent in 2008 and cut gross
domestic product (GDP) to 5.28 percent. GDP is the total value of
goods and services produced in a country in a year.
The Energy department said the
average price of Dubai crude, the country’s benchmark, averaged
$119.46 a barrel in May, up by $16 than the average price in April.
With a baseline average of $90 a
barrel for 2008, the inflation rate is expected to hit 4.5 percent
and GDP growth to reach 6.26 percent.
Doubling the baseline oil price
would translate to a 9.1-percent inflation rate and a corresponding
slowdown of economic growth to 5.37 percent.
At $115 a barrel, NEDA said, the
inflation rate will average 8.5 percent. This rate will translate to
an average of 5.66-percent growth in the GDP. If oil prices hit
$125, prices of goods and services will surge to 8.6 percent and cut
economic growth by 5.57 percent.
The Bangko Sentral ng Pilipininas
had projected that inflation is likely to stay within a range of 8.8
percent to 9.6 percent on the back of the climb in international oil
prices, increases in domestic pump prices and the provisional
increase in transport fares.
In April, inflation rate rose 8.3
percent, the highest in three years owing to higher oil and food
prices. A year ago, it was 2.3 percent.
George Worthington, chief
economist for Asia-Pacific IFR Markets, said the rapid rise in food
prices should see spending on discretionary items—such as
furniture and clothing—slowing or falling as inflation, he added,
acts like a tax on real incomes.
“So, consumption growth is
likely to weaken over the rest of the year after rising very
strongly in the past six or seven quarters. On the other hand, low
or negative real interest rates should stimulate investment
spending, so the overall direct impact of inflation on GDP growth
over the next couple of quarters may not be too negative,”
Worthington said.
On the longer term, he added,
high inflation acts as a drag on growth and if the central bank does
not get on top of inflationary expectations, real growth prospects
will in turn be weaker. If the Bangko Sentral ng Pilipinas fails the
test, real GDP growth in 2009 may ease to around 5 percent, rather
than around 6 percent.
The National Statistical
Coordination Board has reported that the country’s economy, as
measured by the GDP, grew at a slower pace of 5.2 percent, its
weakest since 2006 as a result of rising food and oil prices.
The country’s economic managers
earlier slashed their full-year GDP growth forecast to between 5.2
percent and 6.2 percent, lower than an earlier target range of 6.3
percent to 7 percent. Last year, the economy grew by a revised 7.2
percent.
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