Economist sees single-digit inflation by Dec
abs-cbnNEWS.com | 11/06/2008 4:34 PM
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The country's inflation may slow down to single-digit levels as early as December after easing for the second straight month in October, an economist said Thursday.
Victor Abola of the University of Asia and the Pacific said inflation is slowing down earlier than expected due to the sharp decline in oil and food prices.
"The dramatic plunge in oil and commodity prices now makes policy makers happier as we may see single-digit inflation rates year-on-year as early as December this year, or January 2009 at worst," he said.
Abola noted that the ongoing global economic downturn has been rattling demand for crude oil, whose prices have been hovering in the range of only $60 to $70 per barrel since October from a record high of over $147 in July. "The slide is expected until at least next month," the economist said.
On the other hand, abundant supply due to the harvest season led to a drop in prices of rice and corn.
Last month, the country’s inflation rate eased to 11.2 percent from 11.8 percent in September, bringing the average inflation in the first 10 months of the year to 9.4 percent. Inflation peaked at a 17-year high of 12.5 percent last August.
The Bangko Sentral ng Pilipinas (BSP) earlier revised upward its 2008 inflation forecast to 9-11 percent from the original target of 3-5 percent after inflation hit double-digit levels.
For next year, the BSP sees inflation falling within a range of between 6 and 8 percent instead of the initial projection of 2.5 to 4.5 percent. It expects monthly inflation rates to return to single digits starting the second quarter of next year.
Meanwhile, Singapore-based investment bank DBS said the central bank is likely to keep its key interest rates steady at its policy meeting on November 20 despite slowing inflation.
"The drop in inflation will no doubt bring some relief to the central bank. Nevertheless, Bangko Sentral still appears to be dithering over a rate cut," it said.
DBS said the central bank may instead cut the reserve requirement ratio to address liquidity issues. "The BSP seems to favor a cut in the reserve requirement ratio... as a tool to address liquidity issues rather than provide stimulus to the economy," it added.
The central bank kept its interest rates unchanged at 6 percent for overnight borrowing and 8 percent for overnight lending in October following three consecutive rate hikes totaling 100 basis points.
