Poll bares view of steady Dec. inflation
THE GENERAL INCREASE in prices of widely used goods and services likely steadied in December from the preceding month’s pace, according to analysts asked in a poll last week, keeping the full-year pace within target for the first time in three years.
A poll among 12 economists yielded a 3.3% estimate median for the month, which if realized would match November’s pace but would still be faster than the 2.6% reading in December 2016.
This also falls in the middle of the 2.9- 3.6% estimate range given by the Bangko Sentral ng Pilipinas (BSP) on Dec. 29.
The Philippine Statistics Authority will report official inflation figures on Friday.
“The main drivers are the increase in seasonal demand for goods and services, the continuing increase of oil prices and price shocks brought by weather disturbances of late,” said Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines.
Tropical storm Urduja (international name: Kai-tak) and typhoon Vinta (Tembin) barrelled through parts of MIMAROPA region (consisting of Occidental and Oriental Mindoro, Marinduque, Romblon and Palawan) in southern Luzon, the Visayas and Mindanao days before Christmas. Heavy rains and floods killed at least 48 and caused over P1.3 billion worth of agriculture products, according to the National Disaster Risk Reduction and Management Council.
Other economists cited higher food costs in December as producers faced stronger demand during the Christmas season.
Victor A. Abola, economics professor at the University of Asia & the Pacific, said lower electricity rates may have offset food inflation.
“The unexpected appreciation of the local currency might have also contributed to lower inflation by making imported goods more affordable in local currency terms,” added Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines.
The month saw the peso gain strength versus the dollar to end at P49.93 in its last trading day for 2017, its best performance in over six months.
BSP Governor Nestor A. Espenilla, Jr. has attributed the peso’s recovery to “attractive” domestic fundamentals which have been reinforced by the enactment of the tax reform package.
Abroad, a softer dollar has emerged in the face of market uncertainty over the legislative fate of a parallel tax reform in the United States.
The economists’ estimates assure that full-year inflation will settle at a 3.2% average, matching the BSP’s forecast and settling comfortably within the 2-4% target band. This will mark the first time since 2014 that the full-year pace will finish within target, as prices increased slower than expected over the past two years to hover below two percent.
Several economists believe the “manageable” inflation rate will allow the central bank to maintain borrowing rates so far. The Monetary Board will not review its policy stance until Feb. 8.
“Relatively benign inflation compared to recent years could still provide leeway to keep BSP policy rates steady over the near term,” said Michael L. Ricafort, economist at the Rizal Commercial Banking Corp.
Monetary authorities maintained their policy stance during their Dec. 14 meeting, saying that within-target inflation and firm domestic demand do not warrant any rate adjustments even after a fresh “lift-off” was introduced by the US Federal Reserve.
Some analysts, however, said tightening moves may be on the table this year should inflation pick up steam, largely due to the initial price impact of the first of up to five planned tax reform packages that took effect on Jan. 1.
“If inflation drifts closer towards the upper end of the target range at the start of the year, we might see the central bank raise key interest rates — albeit modestly — in the near term,” said Security Bank Corp. economist Angelo B. Taningco.
The BSP expects 2018 inflation at 3.4%, only slightly faster than last year’s print it believes that the higher levies on fuel, sugary drinks, cars and other items covered by the tax reform law will be “transitory.”
Economic managers of President Rodrigo R. Duterte kept the annual inflation target at 2- 4% from 2018 until 2020 during their Dec. 22 review, with the impact seen tempered by improving productive capacity as the national government invests more on infrastructure and services.