Philippine inflation soars to 6.4% as rice surges

Manila: Philippine annual inflation rose to a 21-month high of 6.4 per cent in March due to a surge in the price of rice, the national staple, the government said on Friday.

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 ($789 million) 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 per cent 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 per cent this year, Governor Amando Tetangco said.