By MAX ESTAYO

Banking giant Hong Kong & Shanghai Banking Corp. said yesterday inflation is likely to accelerate further in February on mounting inflation pressures.

Frederic Neumann, economist of HSBC, said this would put a brake on Bangko Sentral ng Pilipinas’ easing stance.

Neumann said inflation may likely breach the "upper band of the central bank’s target range of 3 to 5 percent" next month, or three months earlier than what the British-owned bank had originally expected.

Inflation rose to a 15-month high of 4.9 percent in January, from just 3.9 percent in December and January last year.

The level breached the central bank forecast of 4.4 percent as food prices surged more than expected. Food items account for half of the inflation basket.

Neumann said core prices accelerating at a faster pace, 3.4 percent year on year from 2.6 percent previously, is a cause of "worry." Headline inflation, meanwhile, rose by 1.2 percent year on year from just 0.8 percent.

Neumann said this "suggests that the higher CPI reading is not only due to unfavorable statistical base effect, but that inflation pressures have measurably picked up."

"It appears therefore unlikely that the central bank would follow through with another 25 basis points cut in March and we expect the authorities to remain on hold for the time being," the Hong Kong-based economist said.

Nonetheless, Nuemann said monetary authorities are "likely to preserve an easing bias in light of the growing risks to economic growth over the course of 2008 and subdued money supply growth."

The BSP cut its overnight rate by 25 basis points in January to bring the rate to a 15-year low of five percent. The BSP has lowered its key rate by a total of 2.5 percent since July last year.

Growth in domestic liquidity, the broadest measure of money supply, eased further to nine percent in December from 9.1 percent a month earlier, lowering the downside risks to inflation.

The domestic economy expanded by 7.3 percent last year, the fastest in more than three decades, triggering the tame policy rate cut last month as monetary authorities said it remains to be seen if the US economy would fall into a recession and slow domestic growth.

The BSP is projecting inflation to come in between 3.5-4.4 percent this year, within the four percent plus or minus one percentage point nominal target.