Inflation to maintain ascent in coming months

INFLATION is seen to keep rising and hit a peak towards the end of the year, a central bank official said, with added price pressures expected from world crude rates as well as wage hike petitions.

Bangko Sentral ng Pilipinas ( BSP) Deputy Governor Diwa C. Guinigundo said inflation is likely to maintain its ascent over the coming months and peak “towards the end of 2018,” contrary to the central bank’s earlier view that the pace will top out by the third quarter.

As of their May 10 meeting, the Monetary Board sees inflation averaging 4.6% this year using 2012 prices, well beyond their 2- 4% target band and will soar from the 3.2% average in 2017.

The pace of price increases averaged 4.1% as of end-April, with last month’s 4.5% climb already the fastest in five years.

Mr. Guinigundo said trends in global oil prices stand as one of the biggest sources of risk as far as overall inflation is concerned, together with second-round effects of the tax reform law.

World crude prices hit threeyear highs in April amid renewed tensions in the Middle East, which pushed retail pump prices here.

Mr. Guinigundo also pointed out proposals for higher minimum wages as something that could drive prices of basic goods up, with a number of petitions already pending before regional wage boards of the Labor department.

“Between now and the next meeting of the Monetary Board, things can change. Oil prices can move up or down, wage demand can either expand in terms of the number of petitions filed, or concerned households will be encouraged by the receipt of unconditional cash transfers,” the BSP official said, while noting that Filipinos also benefited from tax cuts.

Mr. Guinigundo said measures like the cash transfers, as well as the expected approval of rice tariffs to replace import quotas, are seen to temper the impact of quickening inflation.

Replacing the rice import quotas with a 35% tariff will bring down costs for the staple, which have recently been elevated due to the short supply of cheap rice maintained by the National Food Authority.

Inflation can slow by 0.4% if the cap on rice imports is lifted by the third quarter, Mr. Guinigundo has said. However, the bill has yet to clear Congress.

The BSP raised key interest rates by 25 basis points last week, given the view that inflation has spread to cover more widely used goods and services. The move is also seen to manage inflation expectations among market watchers.

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The United Nations’ regional development arm said the BSP may raise its rates further gradually as prices remain elevated.

The United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) likewise said inflation may pick up further this year even as it noted in its May 7 report that “most countries” in the Asia and the Pacific region show “relatively low and stable inflation.”

“Inflation is expected to pick up due to higher oil prices, sustained depreciation of its currency and the expected increase in excise tax based on the tax reform aimed at ramping up revenues for increased spending on infrastructure and social services,” Hamza Malik, director at UNESCAP’s Macroeconomic Policy & Financing for Development Division, said in a May 9 e-mail.

“With inflation rising and in line with further rises in US interest rates ( which could lead to unexpected capital outflows), the case for gradual monetary tightening has strengthened,” Mr. Malik added.

UNESCAP expects inflation to average 4.1% this year, which is faster than its initial 3.3% estimate made in December last year. Still, it expects the rise in prices to ease to 3.5% in 2019.

This compares to the central bank’s 4.6% inflation forecast for 2018 and 3.4% in 2019. —

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