RTTNews - Consumer prices in the Philippines rose at the slowest pace in about 22 years in June due to falling prices of utilities and a slower pace of price rise in other commodity groups, the National Statistics Office said Tuesday.

The consumer price index increased 1.5% year-on-year in June, easing from a 3.3% rise in the preceding month. Economists expected prices to rise 1.6%. This is the lowest rate of inflation since April 1987, when consumer prices climbed 1%. A year earlier, in June, consumer prices were up 11.4%.

Core inflation, which excludes selected food and energy items, eased to 3.9% in June from 4.4% in the previous month.

In the National Capital Region, consumer prices dropped 0.1% annually compared to a 0.8% rise in May, while in Areas Outside the National Capital Region, the inflation eased to 2.2% from 4.2% in the previous month.

In June, prices of fuel, light and water for the whole of Philippines dropped 5.4% annually, faster than a 4.9% drop in May, while service prices fell 1.1% compared to a 0.4% increase in the previous month.

However, the price of food, beverages and tobacco items climbed 3.1%, but slower than the 5.9% rise in the previous month, with the inflation for food alone slowing to 3% from 6% in May. Clothing prices increased 2.5% compared to a 2.6% rise in May, while the price rise in housing and rent as also miscellaneous items slowed to 2.8%.

On a monthly basis, consumer prices were up 0.6% in June, in contrast to a 0.1% drop in May. Economists expected an increase of 0.7%.

A slowing economy gives room for the central bank to cut interest rates further. In its latest monetary policy meeting, the Bangko Sentral ng Pilipinas reduced its key interest rate, the overnight borrowing or reverse repurchase rate, to 4.25% from 4.5%, the lowest level since May 1992. Similarly, the central bank lowered the overnight lending rate or repurchase rate to 6.25% from 6.50%. The latest rate cuts takes the cumulative reduction in the key interest rates to 175 basis points since December last year.

The central bank said the average inflation is expected to remain within the target limits in 2009 and 2010. However, the central bank said a rebound in global oil prices and volatility in the foreign exchange market were possible sources of upside risk to future inflation.

Earlier last month, the Asian Development Bank approved the allocation of additional funds of US$3.4 billion to help developing Asian countries cope with the global economic crisis.

The US$3 billion Countercyclical Support Facility or CSF will provide short-term, fast disbursing loans to member countries, that intend to ramp up fiscal spending in the face of the crisis. Further, the ADB intends to increase its lending assistance by more than US$10 billion in 2009-2010, to support trade finance and infrastructure investment.

In the meantime, the International Monetary Fund forecasts the Philippine economy to shrink 1% this year, but expects it to grow by 2.25% next year.

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