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10:33 Wednesday   6 July 2011

I want to share some notes on inflation coming from a close associate, Dr. Vic Abola of the UA&P. Vic is unlike many Filipino economists who ignore free market.  He has been a financial market follower for many years, and in my opinion, gives more useful insights to economic releases.

The latest CPI data released by the National Statistics Office (NSO) gives the impression that headline inflation had accelerated to 5.2%, way above consensus of 4.7%.  Compared to the 4.5% in May, this may look alarming, but closer analysis points to a fairly flat trend since February 2011.

Apparently, the NSO changed the base year and weights to 2006 in the June data while the May figures were  measured on the old 2000 base year and price series making the two reports incomparable.

Using the 2006 base year data, headline inflation was at 4.7-4.8% from February to April moving up slightly to 5.0% to 5.2% in May and June.  The June up tick was primarily due to hikes in electricity rates and tuition fees, a spike in cooking oil and alcoholic & tobacco prices.  Stable rice prices and lower petroleum pump prices were out weighed in the latest CPI report.

If we use 2000 data series, we see stable inflation of 4.3% from February to April although gaining pace at 4.5% and 4.6% for May and June.  There does not seem to be any cause for alarm since the seasonally adjusted annual rates (saar) based on month to month changes using the available data set with 2000 base and weights give fairly tepid inflation rates of 3.2%, 1.3% and 2.5% from April to June.

Like Vic says, no real cause for alarm.

As for the market today, I think going through a consolidation should be a good buying opportunity.  I remain constructive on mining stocks.  I am quite happy for those who were able to either make money or reduce losses on ORE.  For those who lost faith in the stock, I suppose there are some lessons to be learned about sticking to fundamentals which usually carry the day for a stock.  For those who are holding ORE right now, you have to continue following the stock and gauge if institutions are putting it on their buy list because that is where sustained support for the stock can be found.  Without good institutional support, there will always be wide swings in volatility.

I also would like to remind holders of AT that most commodity analysts see copper prices to be stronger as the year wears on, and AT’s Carmen mine in Toledo is the biggest copper mine in Asia.  The Philippines has one of the biggest copper resource in the world behind Chile and Papua New Guinea.

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