DBS sees inflation at 5.2% in Oct

MANILA, Philippines - Singapore-based DBS Ltd. believes consumer prices kicked up to 5.2 percent last month due to supply disruptions resulting in higher food prices.

DBS said inflation likely averaged 5.2 percent in October but would end the year at 4.4 percent or within the target of three percent to five percent set by the Bangko Sentral ng Pilipinas (BSP) for 2011.

The investment bank said food prices are expected to escalate in the coming months due to the supply disruptions brought about by typhoons Pedring and Quiel last month.

“Food price pressures should start to materialize in the coming months following a strong typhoon in late September,” DBS said.

It pointed out that an estimated 760,000 tons of unhusked rice was damaged and that around 500,000 tons of rice are expected to be imported next year amid the ongoing flood devastation in Thailand is likely to push up international rice prices.

DBS expects a higher-than-trend pickup in headline inflation in the coming months averaging 0.4 percent month-on-month from October to March compared to 0.2 percent in the six months ending September.

Despite the uptick, the investment bank said inflation would still fall within the full-year target of three percent to five percent set by the BSP for this year and next year.

“For the whole of 2011, inflation is expected to average 4.9 percent before cooling off to 4.7 percent in 2012,” DBS said.

So far, inflation averaged 4.8 percent in the first nine months of the year as consumer prices inched up to 4.8 percent in September from 4.7 percent in August.

Last Oct. 20, the BSP retained the central bank’ inflation forecast of 4.46 percent for this year but lowered the forecasts for 2012 to 3.05 percent from 3.4 percent and for 2013 to three percent from 3.23 percent due to the expected slowdown in global economic growth and the lower forecasts for petroleum prices to $94.5 per barrel from $104.75 per barrel for 2012 and to $92.82 per barrel instead of $102 per barrel for 2013.

The BSP kept interest rates steady for the fourth consecutive policy rate-setting meeting since May amid the benign inflation outlook as well as the fragile global and domestic economic environment. The overnight borrowing rate is pegged at 4.50 percent while the overnight lending rate is at 6.50 percent.

The BSP raised interest rates by 25 basis points last March 24 and by another 25 basis points last May 5 as a preemptive move to keep inflation expectations well anchored amid the escalating price of oil in the world market.

The policy rate setting body, however, kept interest rates steady last June 16 and July 28 but raised the reserve requirement ratio for banks by a cumulative 200 basis points to 21 percent from 19 percent to siphon off P70 billion from the financial system and curb additional inflationary pressures arising from excess liquidity brought about by strong inflow of foreign capital.