Philippine inflation hits two-year low


Despite a drop in the inflation rate, poverty continues to have an impact in most parts of the Philippines

Staff and wire reports

MANILA, Philippines -- Inflation in the Philippines dropped to a two-year low of 3.4 percent in February, helped by falling prices for food, utilities and most other goods and services, coupled with a stable currency.

The inflation rate was lower than expected, as the government had projected a 3.9 percent rise, the National Statistics Office (NSO) said.

The inflation rate in January was 3.8 percent.

Price hikes in commodity groups slowed, with the consumer price index for food and beverage dropping to 1.7 percent in February from 1.8 percent in January.

Housing and repairs eased to 5.5 percent from 6.5 percent, while utilities such as fuel, water, and power dropped to 9.0 percent from 10.8 percent.

Cost of services dropped to 5.1 percent from 5.7 percent, while miscellaneous items eased to 2.3 percent from 2.7 percent.

The inflation rate for food alone slipped to 1.5 percent in February from 1.6 percent in January as a drop in prices of vegetables, corn, and fruits capped increases in prices of rice, eggs and fish.

As a result, the government is reportedly planning to reduce its inflation target for the year to an average 4.5 to 5.5 percent from 5.0 to 6.0 percent.

Annual inflation almost halved from 6.7 percent in February 2001, and a peak of 6.9 percent in January 2001 at the height of a mass uprising which forced former President Joseph Estrada out of office.

Rate cut

"It's a very pleasant surprise... and gives us more flexibility (in rates setting)," central bank governor Rafael Buenaventura told Reuters news agency.

He said the bank would have to asses the number, as well as inflationary expectations for the full year before deciding its next move on interest rates.

"I think we can still accommodate a cut but it would be very modest," Buenaventura told reporters.

A cut in key interest rates is expected to take place in March or April. However, Buenaventura said it would depend on future discussions of the central bank's policy-setting monetary board.

The bank last lowered rates on February 15 by 25 basis points, the 18th cut since December 2000.

The Philippines overnight borrowing rate is already at a six and a half year low of 7.25 percent. The overnight lending rate is at 9.5 percent.