PRICES in September are expected to increase by as much as 6.8 percent—a six-year high for the month—owing to adjustments in domestic oil prices and power rates, the Bangko Sentral ng Pilipinas said.

The uptrend in the forecast inflation reflects the impact of supply-side factors, particularly the series of domestic oil price increase in recent months and the recent adjustment in power rates.

“It’s because of higher crude prices and transportation,” Bangko Sentral Assistant Governor Diwa Guinigundo said.

Guinigundo said the central bank forecasts inflation to range from 4.7 percent to 4.8 percent in January to September this year.

The forecast is still within the government’s full-year target of inflation at 4 percent to 5 percent this year.

Latest Bangko Sentral forecasts show that in the absence of adequate supply-side measures, the average headline inflation will continue to rise over the next year or so, and may exceed the 4-percent to 5-percent target for 2004 and 2005 as the full impact of supply factors is felt.

Guinigundo said inflation could go down if importation of products will be relaxed.

August inflation rate reached 6.3 percent with an average of 4.8 percent in the January to August period.

The higher inflation in August is part of the pattern for prices observed over the past several months. Recent increases in prices of most consumer items have been caused mainly by supply-side pressures, notably the uptrend in world oil and major commodity prices, seasonal drop in food production, unfavorable weather conditions and transport fare hikes.

Looking ahead, supply-side factors, particularly global oil prices, will continue to influence the outlook for inflation in the next two years.

Over the near-term, the Bangko Sentral believes that the downside risks to the pace of economic activity as suggested by overall conditions for aggregate demand, credit activity and investments argue strongly against monetary tightening.

By Maricel E. Burgonio