Bangko Sentral ng Pilipinas (BSP) Deputy Governor Diwa C. Guinigundo said they expect a monthly inflation rate of around five percent in the next two quarters because of base effects.

The peak in inflation, according to BSP estimates is 5.28 percent in April. The rest of the year will see consumer prices hugging close to five percent. "BSP has a comfortable number of tools to address adverse impact as the global economy recovers and as it starts unwinding from previous policy stance," Guiningundo said.

Guinigundo and BSP Director for the Department of Economic Research Antonio Cintura said the prevailing inflation outlook indicates within target inflation.

"Prospects from global and domestic food supply remain broadly favorable despite upside risks in prices," said Cintura. "Inflation would pick up in the next two quarters and then ease gradually by the end of 2010 with higher inflation above central projection."

BSP said the potential sources of domestic inflationary pressures are supply tightness in key agricultural products, pending adjustments in domestic power charges and impact of El Niño weather conditions on domestic supply.

Guinigundo said they are comfortable with the five percent monthly inflation.

The 2010 forecast is 4.7 percent and the target is 4.5-5.5 percent while next year's forecast is 3.4 percent and 3-5 percent. But inflation rates continue to be benign and manageable, and consistent with the target range set for this year and in 2011.

For January inflation of 4.3 percent was lower than BSP’s forecast range of 4.5-5.4 percent for the month.

The Monetary Board of the BSP implemented its first exit strategy last month by hiking the rediscounting rate to four percent, same rate as the overnight borrowing.

"BSP will continue to carefully monitor economic and financial developments domestically and globally, in order to detect any possible build-up in inflationary pressures emanating from demandsupply forces and preemptively revisit and calibrate policy setting when warranted," said the BSP.

The inflation in December was 4.4 percent, bringing the 2009 average to 3.2 percent. The inter-agency Development Budget Coordinating Committee has kept all previous assumptions for inflation and foreign exchange, which is still expected to range be- tween P46-49 against the US dollar.