Philippine Inflation Accelerates; Fastest in 16 Years

By Karl Lester M. Yap

Sept. 5 (Bloomberg) -- Philippine inflation accelerated to the fastest pace in more than 16 years, adding pressure on the central bank to increase borrowing costs further in October.

Consumer prices climbed 12.5 percent in August from a year earlier after rising a revised 12.3 percent in July, the National Statistics Office said in Manila today. That matches the median estimate in a Bloomberg News survey of 13 economists.

Central bank Governor Amando Tetangco has raised the benchmark interest rate three times since early June to rein in surging food and oil prices even as growth slowed. The $144 billion economy expanded at the weakest pace in three years in the second quarter as consumer spending waned.

``Despite the economic slowdown, there is still room for further rate hikes until the end of the year,'' said Jonathan Ravelas, a strategist at Manila-based Banco de Oro Unibank Inc. ``The central bank must be proactive as inflation expectations are still higher. It may peak only in the fourth quarter.''

Bangko Sentral ng Pilipinas increased the overnight borrowing rate by 0.25 percentage point to 6 percent on Aug. 28. It will meet twice more this year to decide on borrowing costs.

``Monetary policy needs to be appropriately tight to stabilize inflation,'' Tetangco said on Aug. 31.

The central bank in July 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.

Oil, Rice

Domestic oil prices jumped about a quarter this year as crude rose to a record, fanning costs and wages. The government has approved higher transport fares, increased salaries for state workers and raised the minimum wage for employees in non- government companies.

The cost of rice, the staple food of the more than 91 million Filipinos, rose 43.2 percent in the 12 months to Aug. 26.

The peso has declined 12 percent against the dollar this year, making imports more expensive. The Philippines purchases almost all of its oil abroad and is the world's biggest buyer of rice.

Food, beverage and tobacco costs rose 17.2 percent last month from a year earlier, slowing from a 17.8 percent gain in July, today's report showed. Food accounts for half of the consumer-price index. Fuel, electricity and water inflation accelerated to 7.2 percent. Services costs climbed 13.5 percent.

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