MANILA - A dry spell wreaking havoc in the northern Philippines could hurt farm output but the inflation outlook remains favorable, Bangko Sentral ng Pilipinas governor Amando Tetangco said yesterday.

He said the BSP is keeping intact its inflation forecast of between 2.6 and 3.1 percent for this year, below the government's 4.0-5.0 percent target.

"We're keeping our inflation forecast for the whole year until we get an assessment that would require the review of the inflation forecast," Tetangco said.

The BSP sees consumer prices rising by an average of 3.0-4.0 percent in 2008.

"The inflation forecast for 2008 is based on factors including an increase in oil prices, a possible wage hike, the firm peso and favourable supply conditions," Tetangco said.

Taking all the factors into account "indicates a continuing favorable inflation environment," he said.

For the first half of 2007, inflation averaged 2.6 percent, well below the government's target of 4.0-5.0 percent.

Next year's inflation factored in oil price adjustment, possible wage hike, stronger peso and favorable supply conditions, Tetangco said. "Overall, this indicates a continuing favorable inflation environment," he added.*AFP

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