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Inflation in the Philippines

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Inflation in the Philippines
« on: February 01, 2011, 10:13:33 AM »
Inflation in the Philippines, which moderated from 4.4 percent in 2009 to 3.8 percent last year, is seen to improve and moderate some more to only 2.3 percent this year, the New York-based Moody's Investor Service said on Monday.

It anticipates more subdued inflationary pressures this year as it plots a lower path for local output likely averaging only five percent in terms of the gross domestic product (GDP) from forecast growth of only 6.5 percent for 2010.

Actual local output in 2010 averaged higher to 7.3 percent as the economy grew by 7.1 percent in the final quarter.

The credit rating firm's subdued take on Philippine inflation supports the official view that despite significantly large foreign fund inflows and domestic pressures such as wage hikes and food price hikes, inflation expectations remain well anchored.

Its forecast inflation for the year is even lower than the low end of the official inflation target ranging from three percent to five percent.

But while government is aggressively expecting growth to quicken even more down the line, Moody's said local output this year is also likely to moderate to just five percent.

“Asia-Pacific growth will moderate. but continue to lead global growth in the year ahead. Re-balancing through more reliance on domestic private demand will cushion but not completely offset the headwinds from expected sluggishness in global demand.

“We see regional GDP growth, including in Japan, as moderating to 5.2 percent in 2011 but continuing to outpace other regions. This moderation will be most evident in China and the export-oriented industrialized economies such as Japan, Korea, Hong Kong and Singapore. In contrast, Australia, India and the emerging markets of ASEAN may see little or no deceleration in growth in the year ahead,” Moody's reported.

Bangko Sentral ng Pilipinas Governor Amando M. Tetangco Jr. brushed aside concerns the rather high GDP outturn in 2010 could add to the array of inflationary pressure points the monetary authorities have to contend with at present.

He said the BSP “already incorporated a higher Q4-2010 growth rate than the official government target in our forecast exercise.”

He gave the assurance to blunt concerns that a fast speeding economy breeds inflation as it moves along.

“For purposes of our forecast, the higher than market expectation GDP growth would not necessarily throw this (forecast inflation) off. Inflation remains manageable. There is sufficient liquidity in the system to fund further growth.

“As long as the unwinding of funds kept with the BSP is orderly and such funds are channeled to productive uses, this should not necessarily be inflationary,” Tetangco said.

This pertains in part to the more or less P 1.23 trillion worth of bank funds kept in the vaults of the central bank as part of its liquidity management program, money that would otherwise be idle in the system creating nothing but inflation headaches for the BSP.

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