Philippine Inflation Accelerates From Two-Decade Low

By Karl Lester M. Yap and Max Estayo

Oct. 6 (Bloomberg) -- Philippine inflation accelerated from a 22-year low last month, supporting the central bank’s decision to stop cutting interest rates as economic growth recovers.

Consumer prices rose 0.7 percent from a year earlier, after a 0.1 percent gain in August, the National Statistics Office said in Manila today. That compares with the median forecast for a 0.6 percent increase in a Bloomberg survey of 10 economists.

Bangko Sentral ng Pilipinas kept its benchmark interest rate unchanged at 4 percent last week for a second straight meeting after slashing it by 2 percentage points from December to July. Inflationary risks have increased since August as the economy picks up, Deputy Governor Diwa Guinigundo said Oct. 1.

“Headline inflation is starting to accelerate” and will rise sharply in the coming months, said Frederic Neumann, an economist at HSBC Holdings Plc in Hong Kong. “We expect the central bank to start preparing the ground for rate hikes early next year.”

The peso rose 0.4 percent to 46.53 per dollar as of 9:48 a.m. in Manila, its highest level since Jan. 7, according to Tullett Prebon Plc.

The Philippine economy expanded 1.5 percent in the second quarter from a year earlier, accelerating from a decade low as record-low borrowing costs and government stimulus helped Asian nations recover from the global recession.

‘Exit Strategy’

Bangko Sentral has “an exit strategy in place” and will “shift gradually to a different monetary stance” when it sees signs of firmer growth, Guinigundo said last week.

Fuel, electricity and water prices fell 3.4 percent from a year earlier last month, easing from a 5.4 percent decline in August. Food, beverage and tobacco costs climbed 2.2 percent.

Damage caused by tropical storms to crops and properties in the past two weeks may also fuel inflation, said Ildemarc Bautista, an economist at Metropolitan Bank & Trust Co.

“There is a potential for price increases as people purchase items to clean up and refurbish their houses,” said Bautista, who is based in Manila. “That’s a lot of people buying from the same hardware stores and groceries. It could cause a blip in inflation.”

Typhoon Parma, which hit the Philippines on Oct. 3, killed at least 16 people and brought more rain to areas still recovering from Tropical Storm Ketsana the week earlier. Ketsana dropped the most rain on Manila and nearby provinces in at least 40 years, leaving 293 dead.

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