Philippine March inflation seen at 5.9-6.8%

28-Mar-2009 Intellasia | Inquirer | 8:01 AM

After accelerating last month, inflation will likely drop to a 12-month low in March and resume its downtrend, the central bank, Bangko Sentral ng Pilipinas (BSP), said Thursday.

Inflation, as measured by the year-on-year rise in the consumer price index, is expected to range from 5.9% to 6.8% in March, compared with 7.3% in February, BSP Governor Amando Tetangco Jr. said.

Inflation rose slightly in February because of increased oil prices after months of declines since September. In March, the BSP expects inflation to be tempered by a drop in oil prices and a cut in jeepney fares, Tetangco said.

“The decline in crude oil prices during the month and the downward adjustments in transport fares and electricity rates may have offset the upward price pressures due to a weaker peso,” he told reporters.

The peso, at 48 per dollar in recent weeks, has fallen since last year, as the global financial turmoil prompted foreign investors in emerging markets to liquefy assets.

For the year, the BSP aims to limit inflation to an average of 2.5-4.5%, compared with 9.3% in 2008. The BSP says this target is realistic, given the impact of the crisis-related slowdown in growth of aggregate income.

The BSP says managing public perception on future price movements will be important in ensuring that inflation will not exceed the target.

“Inflation expectations become very important, especially at times of uncertainty,” BSP deputy Governor Diwa Guinigundo said. “If economic agents think that inflation will move up away from the forecast of the BSP, they become self-fulfilling.”

Guinigundo finds it necessary for the public to be accurately informed about price movements so these will not create false inflation expectations. “By explaining that, indeed we have reason to be more optimistic about an inflation outlook, then this will help temper consumer’s purchasing behavior,” he said.

The central bank has cut its key policy rates by a total of 125 basis points since December, hoping to spur bank lending and business activity.

It has also reduced the reserve requirement on banks to 19% of deposit holdings from 21%, to make more funds available for lending.