Philippine Inflation Jumps to 14-Year High on Food

By Clarissa Batino

July 4 (Bloomberg) -- Philippine inflation accelerated to the fastest pace in 14 years, exceeding the central bank's estimate and adding pressure on authorities to increase borrowing costs.

Consumer prices rose 11.4 percent in June from a year earlier, the National Statistics Office said in Manila today. That compares with the 10 percent median estimate in a Bloomberg News survey of 18 economists and the central bank's forecast of 10.4 percent to 11.2 percent.

Rising food and fuel prices, higher wages and a weaker peso are stoking inflation in the Philippines and prompted central bank Governor Amando Tetangco to raise interest rates last month. The bank has scope to increase borrowing costs further without endangering growth, Deputy Governor Diwa Guinigundo said June 27.

``Demand pressures will moderate as monetary policy is generally tightened,'' Tetangco said in a mobile-phone text message today. ``Current oil and food prices are hardly sustainable'' and the Philippines should be back ``to normal cycle'' next year.

Food, beverage and tobacco costs jumped 16.5 percent last month after gaining a revised 13.6 percent in May. Food accounts for half of the consumer price index.

Fuel, electricity and water inflation eased to 7.6 percent from 8.2 percent. ``Domestic pump-price increases triggered large price buildups across wide commodities and services groups,'' Tetangco said.

`Something Bolder'

Services costs climbed 9.9 percent last month. Clothing and housing prices also rose at a faster pace.

``Everything is still fluid and there's a need for the central bank to anchor inflation expectations,'' said Joey Cuyegkeng, an economist at ING Bank in Manila. ``Gradual tightening is the expected course but at some point, they may have to do something bolder.''

Bangko Sentral ng Pilipinas will meet on July 17 to decide on the benchmark interest rate. Policy makers raised the overnight borrowing rate by a quarter-point to 5.25 percent on June 5, the first increase since October 2005, after saying inflation may exceed its targets for this year and next.

``Inflation will probably accelerate this quarter and then by the fourth quarter it may reach a plateau,'' Economic Planning Secretary Augusto Santos said in a telephone interview.

Faster Borrowing

The Philippines may speed up borrowing as much as $900 million from the World Bank and the Asian Development Bank to strengthen the peso and damp inflation, Finance Secretary Gary Teves said late yesterday.

Borrowing the money earlier ``might help strengthen the peso because it would add more foreign exchange,'' Teves said. ``The likelihood is that we would borrow.''

The peso has dropped 10.2 percent against the dollar this year, based on Bankers Association of the Philippines data, fanning inflation by making imports more expensive.

Last month's gain in consumer prices was the fastest pace since May 1994.

To contact the reporters on this story: Clarissa Batino in Manila at cbatino@bloomberg.net