Sept. inflation seen at 3.7%

Price spikes blamed on flooding in August

THE RATE of increase in prices of consumer goods is expected to have “remained elevated” at 3.7 percent year-on-year in September in the wake of the floods brought by monsoon rains in August, according to DBS Group.

The Singapore-based financial service provider said in a research note that inflation stayed relatively high after a spike of 3.8 percent in August.

DBS noted from January to July, or before floods in August led to spikes in food prices, inflation averaged only 3 percent.

“Prices of food and non-alcoholic beverages rose by 1 percent month-on-month in August on the back of floods,” DBS said. “The pace of normalization (of prices) will dictate the pace of inflation for the rest of this year.”

The group said that for the full year, inflation was expected to average 3.3 percent or well within the Bangko Sentral ng Pilipinas’ target range of 3 percent to 5 percent.

This is the fourth revision in DBS’ 2012 inflation forecast for the Philippines, which was originally set at 4 percent. DBS changed this to 3.5 percent in May and, again, to 3.1 percent in July.

“In any case, this disruption to food prices should prove temporary and we are not unduly concerned about inflation over the next four quarters,” DBS said. “Moreover, the strong peso should also help to hold down inflation.”

DBS said that, in the immediate term, risks to economic growth and inflation were “fairly balanced,” although there remained a “paramount” downside risk to the economy due to the slowing international demand for Philippine goods.

“The global outlook remains challenging amid a slowdown in the major economies and external demand will continue to drag,” the bank said.

“Depending on how the export numbers play out, there may be a need for a further cut in the overnight borrowing rate (of the Bangko Sentral ng Pilipinas) in the fourth quarter,” it added.

Last month, DBS said a further easing in policy rates was “certainly possible” if export numbers would worsen.

The BSP has so far cut the overnight borrowing rate by a total of 75 basis points this year to 3.75 percent. Its overnight lending rate was also slashed to 5.75 percent.

“Beyond the short term, however, the domestic economy has been doing well with loans growing at a moderate clip,” DBS said. “Once external risks diminish, the focus will once again be on inflation.”