Inflation rate expected at 3.3% in December

Inflation is expected to remain at the 3.3 percent level in December, same as actual November rate, before increasing to near four percent in the first two months of 2018, according to analysts.

T h e Ty - c o n t r o l l e d M e t r o b a n k affiliate First Metro Investment Corp. (FMIC) and its research partner, University of Asia and the Pacific (UA&P) observed in its latest “Market Call” (December 2017) issue that inflation which peaked 3.5 percent in October has decelerated in November and should continue until the end of the year.”

“It should pick up early in 2018 as higher fuel taxes and less VAT exemptions take effect with the expected approval of the administration’s Tax Reform Package 1 before Congress takes a final recess in 2017,” said FMIC-UA&P in the report.

They expect inflation to stick to 3.3 percent in December before climbing to 3.7 percent in January and 3.8 percent in February. This was higher than its previous estimate of 3.4 percent in January and February.

FMIC-UA&P analysts said they also expect the Bangko Sentral ng Pilipinas (BSP) will leave monetary policy rates at current levels and will likely adjust numbers in the first quarter next year.

As for the peso-US dollar exchange rate, they see the local currency as settling at R50.87 at the close of 2017, and could stay at this range in January and February, at an average of R50.88 and R50.91 which was an improvement to its earlier projection of R51.40.

Last December 14, the BSP’s Monetary Board on its last policy meeting for the year left key rates unchanged while maintaining its inflation forecasts for 2017 and 2018 of 3.2 percent and 3.4 percent, respectively.

The 2019 inflation estimate of 3.2 percent was also retained after assessing continued manageable inflation outlook.

The BSP’s overnight reverse repurchase facility remains at three percent. The policy settings were kept on hold since September 2014.

The Monetary Board said inflation environment is “broadly unchanged” and that average full-year rates will be within the target range of two percent to four percent until 2019. But, it said it will remain "vigilant against any risks to the inflation outlook" and it is prepared to adjust its policy settings "as needed to ensure that future inflation remains consistent with the mediumterm target while being supportive of sustainable economic growth.”

BSP Governor Nestor A. Espenilla Jr. said he remains confident that they are on track with the 3.2 percent inflation for 2017 which is just about the mid-point of target range.