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Rice Leads Inflation:
« on: April 08, 2008, 10:29:06 AM »
Rice prices threaten Philippine inflation, budget
Reuters - Saturday, April 5MANILA, April 4 - Philippine annual inflation rose to a 21-month high of 6.4 percent in March due to a surge in the price of rice, the national staple, the government said on Friday.

   I Am:  A Man A Woman Looking for:  A Woman A Man High rice prices could also prevent the government from achieving its goal of a balanced budget this year, analysts said, after Finance Secretary Margarito Teves announced a shortfall of 32.9 billion pesos in the first two months of the year.

Teves said he still hoped to see a balanced budget, but analysts said higher government spending on boosting rice production and price subsidies would be a drag on finances.

"While the Deparment of Finance does not look to have backed away from its budget balance goal, realistically, if you take into account some risk on the revenue side and some risk in the form of subsidies needed in the farm sector, then it becomes less realistic to expect a balance," said Jojo Gonzales, managing director at Philippine Equity Partners.

But he added: "However, the amount of subsidy or shortfall that is being looked at is not significant, meaning we are probably looking at anywhere from a balanced budget to a deficit of 1 percent of GDP, which is about 60 billion pesos, which is very manageable."

Nevertheless, the spike in prices threatened the central bank's aim of containing inflation within 3-5 percent this year, Governor Amando Tetangco said, although he added that inflation should be within a 2.5-4.5 percent target for 2009.

"The 2008 inflation target is fraught with supply side risks that are considered generally temporary," Tetangco said in a text message to reporters.

"Monetary policy will have limited impact when price pressures derive mostly from the supply side."


The National Statistics Office said inflation in March was driven by an 8.4 percent spike in food prices from a year before, after a rise of 7.0 percent in February.

The price of rice rose 10.9 percent.

"I think we are seeing the government try to counter this surge in rice prices but I think they are probably not going to be too successful in the near term, so inflation is probably going to stay above 6 percent in the next few months," said Nicholas Bibby, an economist at Barclays Capital.

That implied the central bank would keep interest rates on hold for the foreseeable future despite slowing growth, other analysts said.

Teves told reporters the government hoped to find additional revenue to support higher spending.

"We are still going for ensuring we have the resources to fund our expenditure and maintain fiscal discipline and that, hopefully, will be reflected in a balanced budget," he said.

Analysts said the government needed a sharp increase in tax revenue to fund additional support measures to help the farm sector as well as higher expenditure aimed at boosting sagging growth, and this did not appear to be forthcoming.

"The under-collection of revenue persisted. That is an ongoing problem that needs to be tackled," said Christy Tan at Bank of America.

"What is important is whether the recent problems in food supply could lead to further increases in expenses on the budget front."


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