Oil price increase not inflationary - Medalla

The recent oil price hike will have a minimal impact on the economy since it will not automatically result in increases in the prices of basic commodities, Socio-economic Planning Secretary Felipe Medalla said during a government briefing yesterday.

Medalla said price increases will be minimal, provided food supply remains adequate to keep food inflation low. Food grabs 51 percent of the consumer basket, in contrast to fuel, light, and transportation which account for 8.21 percent only.

Medalla, who heads the National Economic and Development Authority, said he projects March inflation to hover between 3.6 and 4.3 percent due to oil price increases. Even the high-end of 4.3 percent is significantly lower than previous inflation rates of the country.

The chief economist said that if not for the oil price hikes, the government is targeting a four-percent inflation rate or even lower for the rest of the year, in contrast to the present six to seven-percent inflation rate target in which the oil price increases have been factored in.

"Still, the low-end six-percent inflation target is low by Philippine standards considering the pre-crisis level of seven percent and higher," noted Medalla.

The NEDA chief also said that despite the 39.6-percent increase in domestic oil prices in February 2000 compared to February 1999, inflation declined from 11.5 percent in January 1999 to three percent in February 2000.

Meanwhile, power rates hardly moved with the recent P.080 per liter hike in the prices of petroleum products, the National Power Corp. (Napocor) said yesterday.

Napocor president Federico Puno said a 10-percent increase in oil products will normally result in a P0.0351 per kilowatthour (kWh) increase in power rates based on the present fuel mix utilized by the government-run corporation.

The increase may even be as low as P0.168 if the share of petroleum products in the fuel mix drops to 11 percent as projected by Napocor by the end of year 2000.

Fuel mix refers to the various sources of energy used by Napocor and its independent power producers (IPPs). These include blended fuel, bunker fuel, diesel fuel, coal, hydro and steam.

"We have noting to worry about as the increase would be extremely negligible. Likewise, the impact of the price adjustments will only be reflected in the consumer's monthly bill two to three months from this month," Puno pointed out.

The rate is a little over P3 per kWh in the Luzon Grid while the Mindanao Grid charges a little than P2 per kWh.

The rate in the Cebu-Negros-Panay grid is less than P3 while the Leyte-Samar grid charges a little over P2.60.

Napocor added that power rates are protected from any dramatic changes due to long term contracts with these suppliers.

"As a bulk user of petroleum products, Napocor does not buy its fuel and diesel requirements on a retail basis. Rather, Napocor bids out the contract for its fully-year supply," Puno said. --