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By Chino S. Leyco, Reporter
FILIPINOS ain’t seen nothing yet, as the
Development Bank of Singapore (DBS) forecast that consumer price
increases will accelerate further in the next four months.
In its third-quarter outlook, DBS said the
Philippines’ inflation will peak at above 11 percent year on year
in September or October, pushing up this year’s average rate to 9
percent. The Singaporean bank’s projection for the coming months
runs counter to the Bangko Sentral ng Pilipinas’ (BSP) earlier
claim that inflation would peak at 11 percent this month and start
decelerating in July.
DBS’ full-year forecast is also well above the
BSP’s own target of between 3 percent and 5 percent.
“Food inflation could rise to above 16 percent
year on year later this year. Given that food accounts for over 53
percent of total consumer spending, this surge in prices must have
an adverse impact on private consumption expenditures growth,” Lim
Su Sian, DBS economist said.
Su said real private consumption expenditure
growth may slip to 5.4 percent before returning next year to 5.8
percent, the same expansion seen last year.
“As prices rise, the amount of goods consumers
can purchase for the same amount of money shrinks. This erosion of
purchasing power was already evident in the first quarter of the
year,” she said.
On Thursday, the BSP released a survey showing
that pessimism will run deep among consumers for the rest of the
year due to rising fuel and food prices.
In its Consumer Expectation Survey, the BSP said
the overall consumer confidence index dropped to -43.8 percent in
the second quarter, easing to -26.9 percent in the third quarter and
to -20.3 percent in the next 12 months.
In April and May headline inflation averaged a
whopping 9 percent year on year, higher than the average of 5.5
percent in the first quarter of the year.
As base-year effects wear off next year and
assuming some stability in energy prices, inflation should ease to
4.8 percent, Su said. This is still well above the BSP’s inflation
target of 2.5 percent to 4.5 percent in 2009.
“We expect the central bank to continue the
tightening cycle it embarked on earlier this month. The overnight
reverse repo [borrowing] and the repo [lending] rates were lifted 25
basis points to 5.25 percent to 7.25 percent, respectively, and we
expect a further 75 basis points of tightening before the year is
up, to be delivered in three moderate steps of 25 basis points
each,” the DBS economist said.
These interest rate hikes should help to contain
risks of a wage-price spiral that may be triggered by a slowing
economy, she said.
Last week, the policy-making Monetary Board
hiked its key policy rates by 25 basis points, hinting of similar
actions in the future should prices continue to appreciate.
With the rate increase, the BSP also raised its
inflation forecast to between 7 percent and 9 percent this year, and
between 4 percent and 6 percent next year.
BSP Governor Amando Tetangco Jr. earlier said
that the increase in oil prices will moderate in the second half of
the year even as food prices have stabilized.
He said inflation could reach 11 percent in June
before dropping continuously starting July.
In an earlier report, DBS said higher oil prices
will hurt the Philippines’ fiscal position and current account
surplus.
The lender said oil prices have become high
enough for more Asian countries to reform fuel subsidies.
“For countries like the Philippines, this
threatens to reverse the improvements in fiscal finances and current
account surpluses responsible for driving the peso stronger from
2005 to 2007,” DBS said.
The Arroyo administration earlier dropped its
plan to balance its budget this year, as it expects higher state
spending to cause a deficit of P75 billion.
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