DOF: Inflation remains at comfortable level
The rate of increase in consumer prices remains at a comfortable level in January to October this year, noting the figure was also below the country’s seven-year average, the Department of Finance (DOF) said yesterday.
In a statement, Finance Undersecretary Gil S. Beltran said the 3.13 percent inflation rate in the first 10 months is within the government’s 2 percent to 4 percent inflation target and also lower than the annual average of 3.16 percent for the last seven years.
Beltran, who is also the DOF’s chief economist, said that even if the government continues with its massive spending on infrastructure projects, inflation would continue to be at a favorable level owing to the country’s good macroeconomic fundamentals.
“The consumer price index or CPI is the most watched indicator for price movements. From 2010 to 2016, during the period when the economy grew by 6.3 percent annually, CPI inflation averaged 3.16 percent,” Beltran said.
“During the first 10 months of 2017 when the economy grew by 6.7 percent, CPI inflation averaged 3.13 percent, slightly lower than the seven-year average,” he added.
Beltran further said in his report to Finance Secretary Carlos G. Dominguez III that inflation could be tamed successfully should the country’s production continue to grow to keep up with rising population and growing incomes.
“This implies maintaining good macroeconomic fundamentals,” Beltran said.
“This means that government should continue to spend for infrastructure and social services and that the Bangko Sentral ng Pilipinas should maintain a level of money supply appropriate for the goods and services produced by the economy,” he added.
To counter the high and immediate impact of low agricultural production to inflation, Beltran said the government must continue putting up the needed infrastructure for the sector such as farm-to-market roads and irrigation, and appropriate extension services by the Department of Agriculture.
The financial sector should also provide credit and guarantee services to farmers so that replanting can be done immediately after typhoons, he said.
Citing a 2014 study on the determinants of inflation conducted by the DOF, Beltran pointed to growth, money supply and inflation expectations as among the key factors affecting inflation.
For example, he said, a percentage point rise in real GDP reduces CPI inflation by 0.77 percentage point. He said monetary policy also affects inflation.
Likewise, a percentage point in M3 or domestic liquidity growth raises inflation by 1.8 percentage point.
Beltran said that using CPI lagged by one month as proxy for inflationary expectations, a percentage point rise in the previous month’s CPI raises inflation by 0.8 percentage point.
“This implies that there is a need to sustain economic growth and maintain appropriate monetary policy. There are alternative measures of inflation,” Beltran said.
“While CPI reflects the inflation for a basket of commodities that comprise the consumer’s budget, there are other inflation measures that reflect a wider array of goods and services that the whole economy produces and consumes,” he added.
He mentioned the GDP deflator, which shows the price movement of all the goods produced and consumed by the economy, including consumer goods, investment goods and government supplied goods and services.