December inflation likely quickened, but within target

Posted at 12/29/2012 8:40 AM | Updated as of 12/30/2012 4:05 PM

MANILA - Philippine inflation likely quickened in December on higher food prices, but within the central bank's comfort range, according to a Reuters poll, giving it room to maintain the key policy rate at a record low.

The median forecast in the poll was for the consumer price index to rise 3.1 percent in December from a year earlier, faster than the November headline inflation of 2.8 percent.

Core inflation, which strips out some of the more volatile
components including food, may have steadied at 3.4 percent.

Average inflation for 2012 is seen at 3.2 percent, near the low end of the central bank's 3 percent to 5 percent target band.

"The sweet spot of high growth and low inflation is likely to continue in the short term, thereby providing leeway for BSP (Bangko Sentral ng Pilipinas) to maintain accommodative monetary policy," said Eugene Leow, economist at DBS Bank in Singapore.

"Moreover, peso strength remains a concern and BSP is unlikely to raise the policy rate in the near term to temper the large volume of portfolio inflow," he said.

The peso has gained nearly 7 percent this year to become Asia's best performing currency next to the Korean won on strong foreign inflows into local stocks and bonds, fueled by forecasts of sustained domestic economic growth.

The central bank, which cut its benchmark rate by a total of 100 basis points this year, expects price pressures to remain manageable in the next two years. Early this month it trimmed its 2013 inflation forecast to 3.1 percent from 3.9 percent and its 2014 forecast to 2.9 percent from 3.1 percent.

After posting the second strongest annual economic growth in Asia of 7.1 percent in the third quarter, the Philippines now expects full-year growth at around 6.5 percent. It sees growth in 2013 at between 6 percent and 7 percent, driven by domestic consumption and higher government spending.