Report: Jan. inflation no cause for worry this year

Even if the inflation rate rose in January, an independent report shows that the country’s financial outlook for the rest of the year leaves little reason for worry. Filipinos should expect to enjoy lower oil prices, cheaper power rates, and a steady supply of rice in the coming months, reported Metrobank's First Metro Investments Corp. (FMIC) and the University of Asia and the Pacific (UA&P) in their Market Call Capital Markets Research for January. The report quelled fears that the inflation rate will continue to rise because of the continuous upswing in the prices of crude oil and other commodities, as well as the projected hikes in toll fees, transportation rates, and wheat and corn prices. “With winter ending, crude oil price upswing will likely take a pause, while food prices may be kept in check by stable rice prices due to its abundant supply," the FMIC and UA&P said. The investment bank and think tank said that power distributor Manila Electric Co. (Meralco) is also set to lower its rates in January and February. “We think that the inflation scare is overblown," said the report, adding that the inflation rate would likely average 3.1 percent in the first four months of the year. The inflation rate shot up to a four-month high of 3.5 percent in January — the highest since August last year when it reached 4 percent. Due to the stronger-than-expected gross domestic product (GDP) growth of 7.5 percent last year, the Bangko Sentral ng Pilipinas (BSP) expects inflation to average 3.6 percent this year and 3 percent next year. The country posted an inflation rate of 3.8 percent in 2010, and 3.2 percent in 2009. 2011 inflation has peaked The study expressed confidence that inflation has already peaked this year and is expected to drop to below 4 percent in the fourth quarter. "Since we do not expect a sharp rise in inflation in the first half, we also do not think the BSP will raise policy rates in the first half of the year, despite robust GDP growth," the study added. With inflation remaining manageable and benign, the BSP Monetary Board has kept its key policy rates unchanged for 13 straight policy-setting meetings since July 2009. This was said to have minimized the adverse impact of the global financial crisis on the domestic economy. The board slashed key policy rates by 200 basis points between December 2008 to July 2009, bringing the overnight borrowing rate to a record low 4.0 percent and the overnight lending rate at 6.0 percent. BSP Governor Amando Tetangco Jr. earlier ruled out an urgent need to tweak its key policy rates. "Even if there is an increase in the forecast, our reading continues to be that the inflation rate for this year and next year will still be within the inflation target. There might be some upward adjustment, but even with this, the inflation forecast will still be within the inflation target range for both this year and next year," he said. First policy-setting meet this year This Thursday, Monetary Board will hold its first policy-setting meeting this year. Tetangco said inflation could fall within the range of 3.8 percent and 4.2 percent this year if the upside risks to consumer prices materialize, resulting in a major build-up in inflationary pressures. [The BSP has identified the upside risks to inflation as potential upward pressures to commodity prices given sustained demand from emerging markets as well as demand-induced price pressures from a stronger-than-expected domestic economy. Other upside risks include the cost-side pressures from the likelihood of further adjustments in domestic rice prices and electricity charges as well as the potential impact of weather disturbance on agricultural production. On the other hand, downside risks include the sustained appreciation of the peso against the US dollar as well as uncertainty over the pace of global economic recovery particularly from advanced economies that would temper commodity price increases. — With Paterno Esmaquel II/VS, GMA News