Blog about the upcoming food shortage crisis

Everybody throws stones at the prophet, but when the crisis comes they yell: “Why nobody warned us?”

Spike in food prices likely pushed Feb inflation to as high as 5.5%

The Philippine Star

As food prices surged last month, the national average inflation rate could spike to as high as 5.5 percent in February, the Bangko Sentral ng Pilipinas (BSP) said.

BSP Governor Amando M. Tetangco Jr. told reporters that the inflation rate could average between 4.8 percent and 5.5 percent, mainly as a result of increases in the prices of certain food items.

He said prices of rice, meat, corn and flour went up last month, likely pushing the inflation rate since they comprise about 13.5 percent of the consumer price index.

Tetangco said the increase in the prices of these items were only partly offset by the decline in the prices of petroleum products after the reduction in tariffs on imported oil and oil products.

“There was also lower electricity rates,” he added.

According to Tetangco, however, the uptick in February would not be unexpected since the BSP has been projecting a hump in the inflation trajectory towards the middle part of the year.

Tetangco said there were also risks related to the rising prices of oil in the world market which would ultimately impact on commodity prices.

“These will remain the key risks to our inflation outlook for the rest of the year,” he said.

Although the full-year average is seen projected to be within the official target inflation of three to five percent, Tetangco pointed out the trajectory on a monthly basis would not be at a uniform level throughout.

“We’re not targeting inflation on a monthly basis,” Tetangco stressed. “But current forecasts show that sometime during the first half of the year, the monthly inflation would rise to around the top end of the target range.”

He said the hump on the inflation rate curve would be precipitated by the combined effects of supply pressures and by the base-effects since inflation that time of the year in 2007 was low.

“Nevertheless, the average inflation forecast for 2008 falls within the middle of the target range,” Tetangco said, placing the average forecast inflation for the year at around four percent.

Specifically, inflation for the whole year is projected to range between 3.5 percent and 4.3 percent, although Tetangco said the overall outlook of the central bank still indicated a “generally manageable path” despite the uptick later in the year.

Tetangco said the BSP also sees only a modest build up in demand conditions that would be accompanied by favorable domestic food supply, a firmer peso and well-anchored inflation expectations.

But the BSP earlier admitted that upside risks continue to dominate downside risks, particularly the continued volatility of oil prices and the increase in non-oil prices.

Tetangco said the BSP had already factored in a possible adjustment in wages, transport fares and utility rates as well as resurgence in domestic liquidity growth due to sustained foreign exchange inflows.

“But we still think that these risks are manageable,” he said. “The threat of imported inflation has been dampened by the relative firmness of the peso against the US dollar.”

According to the BSP, the potential slowdown in the US economy is also taming the prices of oil in the world market, although world oil prices recently peaked at a record $103 per barrel.

“In addition there are only modest pressures coming from aggregate demand on prices as core inflation during the quarter remained on a downtrend and lower than headline inflation,” the BSP said.

The national average inflation rate has already surged to its highest level in 15 months in January, with the increase in the prices of basic commodities speeding up to 4.9 percent compared with last year’s price increases.



March 1, 2008 - Posted by | Uncategorized

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