The National Statistics Office said Tuesday that the consumer price index rose 6.9 percent on year in May, after rising 7.1 percent in April, as increases in food prices eased due to a better harvest.

The inflation rate for food, which accounts for about half of the CPI, was 5.9 percent on year compared with the previous month’s 6.1 percent.

On month, inflation was 0.2 percent in May compared with 0.1 percent in April. In the five months to May, inflation averaged 7.2 percent on year.

May’s inflation rate was near the lower end of the 6.8 percent to 7.5 percent range forecast by the central bank for the month.

"Demand pressures are broadly muted. Supply shocks are still dominant, and price pressures from these should generally not be long lasting," Bangko Sentral ng Pilipinas Governor Amando Tetangco told reporters.

"This provides some basis for keeping the present policy stance at this time, while keeping an eye on domestic liquidity conditions and foreign interest rate movements," he said.

Last week, the central bank kept its closely watched overnight rates unchanged on expectation that inflation would ease in the second half of the year.

The central bank is scheduled to hold its next policy meeting on June 29.

The overnight rates now stand at 7.50 percent for borrowing and 9.75 percent for lending — unchanged since Oct. 20. The central bank raised overnight rates three times last year by a total 75 basis points, as well as raising banks’ reserve requirements.

May’s on-year inflation result marked the second time this year — the first being January’s 6.7 percent — that the increase in the CPI has slowed below 7 percent amid soaring world oil prices.

Despite this, the central bank has kept its neutral monetary stance on expectation that supply shocks will ease in the second half of 2006 and send inflation back toward the 4 percent to 5 percent range in 2007.

The statistics office said that core inflation, which excludes relatively volatile items in the food and energy sectors, slowed in May to 6.1 percent on year from 6.3 percent in April. (Dow Jones)

News of May’s inflation data helped cushion the Philippine stock market from the impact of a 1.8 percent overnight fall in the Dow Jones Industrial Average, attributed to uncertainty over the fate of the US economy and interest rates.

The benchmark 30-company Philippine Stock Exchange Index fell 14.61 points, or 0.6 percent, to 2289.80, but was off its intraday low. (Dow Jones)

"We expected something a bit worse than this because of talk of a lowering of the Philippine government’s tax target and comments made by Federal Reserve Chairman Ben Bernanke," said AB Capital Securities research director Jose Vistan. "The May inflation data could have helped temper the decline. It was something positive for the market." (Dow Jones)