Philippine July Inflation Accelerates to 16-Year High

By Karl Lester M. Yap

Aug. 5 (Bloomberg) -- Philippine inflation accelerated to the fastest pace in more than 16 years in July, increasing pressure on the central bank to raise interest rates for a third month in August.

Consumer prices rose 12.2 percent from a year earlier, the National Statistics Office said in Manila today. That's more than the 11.9 percent median estimate in a Bloomberg News survey of 16 economists and the central bank's forecast of 11.2 percent to 12 percent.

Bangko Sentral ng Pilipinas Governor Amando Tetangco, who has raised interest rates twice this year to fight inflation even as economic growth slows, said today the central bank will maintain a ``tight'' monetary policy. The peso rose on optimism higher interest rates will lure investment.

``The central bank is doing the right thing,'' said Fitz Aclan, who helps manage about $6 billion in equities and fixed- income assets at Manila-based Banco de Oro Unibank Inc. ``Its all about inflation expectations and what we're seeing right now is that inflation numbers will gradually taper off.''

Inflation will peak early in the fourth quarter as oil prices ease, Tetangco said in a mobile-phone text message today. The central bank, which next meets to decide on monetary policy on Aug. 28, raised the overnight borrowing rate by half a percentage point to 5.75 percent on July 17, the biggest increase since 2000.

``Monetary policy will continue to be appropriately tight until we see a more benign outlook and manageable inflation expectations,'' Tetangco said.

Peso, Bonds

The Philippine peso gained the most in two weeks today, and five-year government bond yields dropped to the lowest in more than two months.

Asian central banks have raised interest rates this year as they grapple with rising prices that threaten expansion in the world's fastest growing region. The Reserve Bank of India on July 29 raised its benchmark repurchase rate by half a point to 9 percent, more than economists forecast.

Bank Indonesia boosted borrowing costs for a fourth straight month today. Thailand raised its benchmark for the first time in two years last month.

``Bangko Sentral now has to walk the hawkish talk,'' said Vishnu Varathan, an economist at Forecast Singapore Pte, before the inflation report. ``It's almost certain to hike rates again if it doesn't want to be seen as a laggard in the region.''

The central bank last month increased its 2008 inflation estimate to a range of 9 percent to 11 percent, from a previous prediction of 7 percent to 9 percent, citing a weak peso and higher food, transportation and energy costs.

Domestic oil prices have gained 36 percent this year as crude rose to records, fanning transportation costs and wages. The cost of rice, the staple food of the more than 91 million Filipinos, jumped 53 percent in the 12 months to June in the country as world prices soared.

To contact the reporter for this story: Karl Lester M. Yap in Manila at kyap5@bloomberg.net.