Inflation to settle within target

Saturday, February 11, 2012

FOLLOWING the drop in inflation rate to 3.9 percent in January 2012, the National Economic and Development Authority (Neda) said the rate is seen to settle within the Philippine Development Plan 2011-2016 target of three to five percent for 2012, using the 2000-based Consumer Price Index (CPI) series.

Neda said, however, that inflation could still be affected by abrupt shocks.

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"Even with this benign inflation outlook, the government should remain vigilant to abrupt shocks caused by weather-related disturbances, as well as wage and oil price increases," Socioeconomic Planning Secretary Cayetano W. Paderanga Jr. said.

Neda noted the Philippine Atmospheric, Geophysical and Astronomical Services Administration’s (Pagasa) report that the country is currently experiencing weak to moderate La Niña, which will only dissipate between March and May of 2012.

Heavy rains caused by La Niña destroy major agricultural areas and infrastructures that subsequently lead to increasing food prices.

Neda also reported that adjustments in the international price of oil affect domestic prices when producers and distributors of goods and services use it as a primary input.

"While a weak external demand is being anticipated in 2012, oil prices are still expected to be higher than in 2011. This is due to geopolitical uncertainties in the Middle East, particularly caused by Iran’s threat to close the Strait of Hormuz in response to a possible European Union oil embargo," Paderanga said.

He said inflationary pressures from wage hike should also be expected as most wage orders were implemented in 2011 under the Labor Code of the Philippines.

The headline inflation rate, computed using the 2006-based CPI of the National Statistics Office (NSO), slowed down to 3.9 percent in January 2012 from 4.2 percent in December 2011.

The inflation rate was lower than that posted in the previous month due to lower prices gains in food and non-alcoholic beverages (3.3 percent in January 2012 from 4.1 percent in December 2011), transport (5.3 percent from 6.0 percent), alcoholic beverages and tobacco (5.6 percent from 6.0 percent), health (2.8 percent from 3.0 percent), and furnishing, household equipment and routine maintenance of the house (2.4 percent from 2.5 percent).

The drop in retail prices of food, particularly vegetables and fish, and lower upward price adjustments in transport-related commodities such as diesel supported the continued deceleration in inflation rate.