BSP forecasts ebbing inflation in November DOF welcomes House inquiry over ‘underspending’

Between 5.8% and 6.6%

The Bangko Sentral ng Pilipinas (BSP) yesterday forecast a lower inflation for the month of November, or as low as 5.8 percent to 6.6 percent compared to October’s actual 6.7 percent, because of the “sharp” drop in fuel costs.

According to the BSP Department of Economic Research, inflation in November will likely settle within the range and not as high as the past two months, in September and October.

“The deceleration of inflation for the month could be attributed to the sharp decline in petroleum prices, the normalization of supply conditions in rice and other agricultural commodities, and the peso appreciation,” said the BSP.

“These could be offset in part by the adjustments in jeepney and bus fares as well as higher electricity rates in Meralcoserviced areas. Moving forward, the BSP will remain watchful of economic and financial developments to ensure the achievement of its primary mandate of price stability conducive to balanced and sustainable economic growth,” the BSP added.

Last November 15, during the Monetary Board policy meeting where key rates are again adjusted higher to curb high inflation and protect 2019 inflation outlook, the BSP revised its inflation forecast next year to 3.5 percent from its previous (September 27) estimate of 4.3 percent on account of passage of the rice tariffication bill and the government’s plan to suspend the 12 excise tax on fuel next year.

Based on data that the BSP used for its latest 2019 and 2020 inflation forecasts, the impact on inflation of the rice tariffication is to reduce it by 0.85 percentage points (ppt) in 2019 while the suspension of excise tax on oil will lower both 2019 and 2020 inflation by an additional 0.10 ppt.

BSP Deputy Governor Diwa C. Guinigundo has said that these two factors are enough to bring back inflation to the target range of two-four percent for 2019 and 2020.

Guinigundo said the lowering of 2019 inflation estimates to 3.5 percent from 4.3 percent, and 2020’s revised 3.2 percent from an earlier forecast of 3.3 percent, shows the BSP’s assessment that inflation expectation will soon settle to within manageable levels after considering all the upside risks.

For 2018, the balance of risks to inflation is still on the upside and the BSP expects inflation to average at 5.3 percent in 2018, way above the target band of twofour percent. The rate is currently at 5.1 percent year-to-date after October’s 6.7 percent.

Upside risks to inflation includes the impact of the implementation of Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) law on the prices of domestic goods, a weaker peso and volatile exchange rate, wage adjustments, higher utility prices, and bad weather because of supply shortage. From the external side, upside risks are the volatile global oil prices, trade tensions, and tighter global financial conditions.

Other upside risks are transport fare increases, strong domestic demand during the holiday season and due to the upcoming election, and the delay in the implementation of non-monetary measures to curb high inflation.