BY JIMMY CALAPATI

YEAR-ON-YEAR inflation rate surged to a 14-year high of 11.4 percent, with the National Statistics Office saying almost all commodity groups recorded higher prices last month due mainly to the rise in food and fuel prices.

"June inflation rose to double digit on account of the unprecedented jump in world oil prices. As a result, domestic pump price increases triggered large price build-up across wide commodities and service groups," said Amando Tetangco, governor of the Bangko Sentral ng Pilipinas.

"We share the view that current oil and food prices are hardly sustainable, producing global slowdown and widespread inflation in all countries," Tetangco added.

It is the highest recorded rate since May 1994 when inflation stood at 11.5 percent. It was also the first time inflation had hit double digits since January 1999.

The June inflation figure is beyond the forecast range of 10.4-11.2 percent set by the BSP earlier this week. It put the average for the half of the year at 7.6 percent.

The BSP's emerging baseline forecasts, which reflect recent data on inflation and output, suggest that average inflation in 2008 will reach 7 to 9 percent, which is above the government's target of 3 to 5 percent, compared to the actual average inflation rate of 2.8 percent for the whole of 2007.

"This trend is expected to peak during this third quarter and to start coming down in the fourth quarter through 2009," Tetangco said.

"For RP, we should be back to normal cycle by early next year," he added. "Demand pressures will moderate as monetary policy is generally tightened."

BSP, which sets key monetary tools such as interest rates based on inflation, raised overnight rates by 25 basis points last month. 

Analysts believe another rate hike is possible when the Monetary Board meets on July 17.

"I think the BSP will respond by raising policy rates," said Edward Teather, an economist at UBS, adding a rise of either 25 or 50 basis points was possible.

"I do think inflation will slow to a single digit next year, but without policy tightening ... it may not fall by enough to reach the central bank's inflation target range at the end of next year."

Vishnu Varathan, at Forecast Pte Ltd said the central bank may opt for a bigger half-point rate rise to dispel any doubts that it had not been aggressive enough in its efforts to contain inflation.

The central bank eased its policy four times last year, helping the economy grow 7.2 percent, a 31-year record, and cut rates again in January.

But as inflation had risen steadily since, racing well past the government's target range of 3-5 percent, the authorities switched to a tightening mode, even as growth tapered to an annual rate of 5.2 percent in the first quarter.

BSP deputy governor Diwa Gunigundo has indicated raising interest rates was not the only way of tightening policy.

Other tools included raising bank reserve requirement ratios or expanding the central bank's special deposit account window, in which banks park funds.

The NSO said local food and energy, the two most prominent items whose prices have been increasing in the past months, have caused other products and services to rise, too.

"At the national level, the annual inflation rate for food alone rose to 17.4 percent in June from 14.2 percent in May," the NSO said.

The soaring prices of rice along with upward adjustments of other food items such as flour and flour products, fruits and vegetables and meat in selected regions pushed the month-on-month inflation rate in the Philippines to 2.3 percent in June from 1.5 percent in May.

All the commodity groups continued to post higher year-on-year inflation rates except for fuel, light and water index whose annual growth rate was slower at 7.6 percent in June from 8.2 percent in May.

Annual inflation for food, beverages and tobacco picked up to 16.5 percent in June from 13.6 percent in May; clothing, 4.2 percent from 4 percent; housing and repairs, 4.3 percent from 4 percent; services, 9.9 percent from 7.8 percent; and miscellaneous items, 2.9 percent from 2.7 percent.

Annual inflation for rice was higher at 43 percent in June from 31.3 percent in May; corn, 34.3 percent from 27.1 percent; cereal preparations, 16.6 percent from 15.3 percent; fish, 10.8 percent from 9.6 percent; fruits and vegetables, 12.5 percent from 10.1 percent; meat, 11.4 percent from 10.4 percent; and miscellaneous foods, 8.3 percent from 7.6 percent.

Prices of gasoline and diesel continued to soar during the month.

Tuition hikes; increments in the prices of school supplies, textbooks and medicines; increased transport fares and higher charges for personal services in many regions were also observed.