Pangasinan Today

MANILA, Philippines - The Philippines’ inflation rate is expected to hit double-digit levels this June as it posts a nine-year high on the continued surge of food and fuel prices.

A trader gives a market trend thumbs down Monday at the PSE in Makati. The composite index lost 6.30 points, a new low in nearly two years.

Higher inflation levels cut the purchasing power of the peso, forcing consumers to pay more for goods and services.

The Bangko Sentral ng Pilipinas (BSP) said that June’s inflation may reach 11.2 percent, raising the possibility that it may hike lending rates again in an effort to contain high prices.

While increasing borrowing costs is seen to curb inflation, the move is also expected to discourage expansion in the Philippine economy, which has grown the fastest in more than three decades last year.

BSP Deputy Governor Armando Suratos said that the central bank expects inflation to hit anywhere between 10.4 percent and 11.2 percent in June, nearly five times more than last year’s figures.

In May, inflation hit 9.6 percent. In June last year, the rate was at 2.3 percent.

The BSP increased its inflationary expectations after world oil prices relentlessly posted record-highs beginning in June 2005 and has shown no indication of declining anytime soon.

Besides high oil and food costs, the country’s central monetary authority is also weighing the impact of wage adjustments on the economy. Increased pay for workers—through the cost of living allowances (COLAs)—will increase the country’s money supply, also seen to boost inflation.

Increased cash in the financial system is expected to heighten demand for commodities, which in turn will cause high prices. To maintain price stability—one of the BSP’s roles—it may choose to raise lending rates, which has the effect of siphoning off the excess cash in the system.

Suratos said the BSP also detected increases in the prices of rice as well as the cost of petroleum products. Rice alone accounted for the single biggest commodity in the consumer price index, accounting for about 9 percent.

For 2008, the BSP expected the inflation rate to hit anywhere from seven to nine percent and four to six percent in 2009.