Philippines October Inflation Slows for Second Month

By Karl Lester M. Yap

Nov. 5 (Bloomberg) -- Philippine inflation eased a second month to the slowest pace since May as prices of food and services fell.

Consumer prices climbed 11.2 percent from a year earlier, after rising a revised 11.8 percent in September, the National Statistics Office said in Manila today. That compares with the 11.4 percent median estimate in a Bloomberg News survey of 13 economists.

The Philippine central bank remains on guard against inflation, Managing Director Cyd Tuano-Amador said Nov. 3. Bangko Sentral ng Pilipinas kept its key interest rate unchanged last month after three increases and avoided joining policy makers in Asia, the U.S. and Europe in slashing borrowing costs as the credit crisis threatens to push the world into recession.

``The central bank would rather wait for further signs from the economy and may hold off until next year to make a cut,'' said Jonathan Ravelas, an economist at Banco de Oro Unibank Inc. in Manila.

The Philippines, which has cut its growth target four times this year, maintained its benchmark interest rate at 6 percent last month even as it predicted inflation would ease. The central bank next meets on Nov. 20 to decide on borrowing costs.

Oil prices, which have fallen about 50 percent since the central bank started raising interest rates on June 5, remain volatile and pose a risk, Tuano-Amador said. The Philippines imports nearly all its oil requirements.

Greater Latitude

Still, slowing inflation bodes well ``for cementing inflation expectations going forward, which in turn provides greater latitude for monetary policy,'' Governor Amando Tetangco said in a mobile-phone text message today after the inflation data. The central bank will continue to monitor risks to the inflation outlook, he said.

Food, beverage and tobacco costs rose 15 percent last month from a year earlier, slowing from a 16.1 percent gain in September, today's report showed. Food accounts for half of the consumer-price index.

Fuel, electricity and water inflation accelerated to 10.7 percent in October. Services costs climbed 10.2 percent, easing from a 12.1 percent gain previously.

A weaker peso may prevent the central bank from cutting interest rates, said Edward Teather, an economist at UBS AG in Singapore. The peso has fallen more than 14 percent this year and is headed for its worst annual loss in eight years.

``The central bank still has the weak currency to worry about,'' Teather said. ``Unless something dramatic happens to the strength of the currency, there won't be a rush to ease policy rates.''

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