Press Release
May 7, 2008

Legarda warns of double-digit inflation
Senator sees BSP allowing peso to appreciate vs. dollar

Sen. Loren Legarda, Senate economic affairs committee chairperson, on Wednesday warned that consumer price increases, as measured by the inflation rate, could easily hit double-digit levels in the months ahead on account of soaring food and fuel prices.

Legarda's warning came as The Goldman Sachs Group Inc., one of the world's top investment banks, boldly predicted a likely "super spike" that could send global oil prices soaring to $150 to $200 per barrel in six to 24 months.

The National Statistics Office on Tuesday reported that the country's inflation rate surged to a three-year high of 8.3 percent in April, owing to huge increases in food and fuel prices.

In March, Legarda had warned that the surge in rice prices to P25 to P30 per kilo would set off massive increases in the prices of other basic commodities.

On Wednesday, Legarda said that in order to fight inflation, she sees the Bangko Sentral ng Pilipinas (BSP) either allowing the peso to strengthen against the dollar, or eventually raising interest rates, or doing both.

Last month's inflation rate brought to 6.2 percent the average inflation rate in the first four months of the year, well above the BSP's original full-year target of 3.0 to 5.0 percent.

Inflation is defined as a sustained increase in the general level of prices for goods and services. It is measured as an annual percentage increase. As inflation rises, every peso earned by a household buys a smaller percentage of a product or service.

To help ordinary Filipinos cope with soaring consumer prices, Legarda suggested that:

All regional wage bands expedite the grant of pay increases for private sector worker;

Congress temporarily suspend the 12 percent value added tax (VAT) on oil and petroleum products; and that

The National Food Authority should continue selling low-priced, government-subsidized rice to marginal households countrywide.

Legarda noted that the temporary suspension of the VAT on oil would instantly lower pump prices by about P5 per liter, and in the case of cooking gas, by around P50 per tank.

"There is no question that the temporary lifting of the VAT on oil will extend material relief to consumers," she said.

Legarda also said she is "totally behind" the government's fresh push to lower "excessive" electricity rates.

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