RP July inflation stays at 3.9%

The Philippines' annual inflation rate in July remained within the central bank's estimate at 3.9 percent. Core consumer prices, excluding some volatile food and energy items, increased 3.9 percent in July from the previous year, higher than June's revised 3.8 percent, the National Statistics Office (NSO) said Thursday. Inflation rate in July a year ago was 0.2 percent. NSO said food, beverages and tobacco prices was higher at 3.2 percent in July from 3.1 percent in June. Housing and repair prices, according to the NSO, rose 1.7 percent from 1.6 percent in June. Prices on services in July grew 4 percent from 3.9 percent in June, said NSO. NSO said prices for utilities such as fuel, light and water climbed 14.4 percent from a year ago, but was lower compared to June's 16.4 percent. It said the annual price increase in the clothing index remained at 1.9 percent. Annual inflation rate in the National Capital Region (NCR) was registered at 4.1 percent in July, the same rate in June, NSO pointed out, saying annual price increases in clothing, housing and repair, and miscellaneous items remained at their respective last month's rates. NSO said the annual inflation in areas outside NCR at 3.8 percent in July was, however, slightly lower than its June rate at 3.9 percent. This, according to NSO, can be attributed to the deceleration in the annual price increments recorded in clothing and fuel, light and water index. The Bangko Sentral ng Pilipinas (BSP) has estimated the July inflation rate within the range of 3.5 percent to 4.4 percent. Monetary authorities said the steady inflation for this month continues to support the view of a within-target full year inflation, which backs up the assessment that current policy stance remains appropriate. Moreover, Barclays Capital senior economist Prakriti Sofat said July's inflation came in below the market expectation of 4.1 percent. "This is the seventh consecutive month that inflation has surprised on the downside," Sofat said. She said that the lower inflation in July gives the BSP the flexibility to keep rates for a longer period. She, however, pointed out that there is a need for montary authorities to adjust its key policy rates starting the fourth quarter of the year. Sofat said the BSP would raise its key policy rates by 25 basis points in the fourth quarter of the year and by another 25 basis points in the second quarter of 2011. The central bank kept its policy rate steady at a record low of 4 percent at its policy meeting in July, making it among the few countries in Asia to lift interest rates since the global financial turndown. Policymakers have said they are not rushing to raise the interest rate — which has been at 4 percent since July 2009 — as the inflation is on track to meet the government's targets of 3.5 percent to 5.5 percent in 2010 and 3 percent to 5 percent in 2011. "The bias of the BSP clearly remains to err on the side of caution. While we agree that average inflation for the year will be within the policy target band, we believe there is a need for some policy normalisation to ensure that low inflation expectations become entrenched," Sofat said. —JE/OMG, GMANews.TV