Inflation at 2-year high after Haiyan

MANILA, Philippines (UPDATED) – Devastation caused by Super Typhoon Yolanda (Haiyan) pushed inflation to a 2-year high of 4.1% in December, the government said Tuesday, January 7.

Economic Planning Secretary Arsenio Balisacan said prices of major food items rose across the board, especially in storm-hit areas.

"Almost all food items in the average consumer basket increased which can be mainly attributed to the impact of Typhoon Yolanda that hit the central Philippines in November," Balisacan said in a statement.

Yolanda lashed Visayas in November, leaving 8,000 people dead and missing and more than four million homeless. It also destroyed key infrastructure, which led to gridlocks that resulted in artificial supply crunches, the government said.

"Some food items even reached double-digit inflation in the areas hardest hit by the typhoon," Balisacan added.

He said December's inflation was the highest since the 4.2% registered in December 2011. However, full-year inflation averaged 3%, which was at the low end of the government's 3% to 5% target.

Rising inflation has fueled expectations of interest rate hikes, which will make the cost of borrowing more expensive.

Inflation, or the increase in the prices of goods and services, is one of the factors the Bangko Sentral ng Pilipinas looks at when it sets its key interest rates, which influence the rates that local banks charge on their loans.

High rates discourage consumers to get loans, controlling their spending. Low demand puts downward pressure on prices.

It is the job of the central bank to maintain a healthy balance since low spending also weighs on economic growth.

Increase in fuel, electricity prices

Balisacan said that adding to inflation pressures were an uptick in oil prices as well as a 40% hike in generation charges imposed by Manila Electric Company (Meralco), which distributes power to Manila and its surrounding provinces.

Meralco's rates went up due to shutdown of the Malampaya gas facility and unscheduled outages of power plants where the utility firm sources its power requirements.

The rate hike, which was temporarily stopped by the Supreme Court, is now the subject of scrutiny of  the Senate, the Department of Justice and the committee composed of the Department of Energy, the Energy Regulatory Commission and the Philippine Electricity Market Corporation, the operator of the electricity spot market. – Rappler.com, with Agence France-Presse