Inflation rate seen to average 3% in H1

Inflation rate is expected to range in the three percent level in the first six months of the year on stable fuel and food prices, according to a research group.

“We expect headline inflation to hit three percent and hover around it in the first half as crude oil prices have stabilized at current levels while food supply should improve with better agricultural performance and early rice imports,” said First Metro Investment Corp. with research partner University of Asia and the Pacific (FMIC-UA&P) in its latest “Market Call” issue.

FMIC-UA&P added: “The outlook for the second half may be less sanguine if the proposed excise taxes on petroleum products become effective then.”

For February, it expects inflation rate to settle at 2.9 percent and higher in March at 3.1 percent. For the month of April it sees headline inflation further climbing to 3.3 percent.

FMIC-UA&P said the Bangko Sentral ng Pilipinas (BSP) also seemed set on its liquidity management with the term deposit facility (TDF) which it introduced last June with the implementation of the interest rate corridorr.

“BSP will continue to remove liquidity from the financial system through its overnight deposit facility and TDF through the first half at a much slower pace compared to the second half of 2016,” the report said.

“With inflation still well within the two percent to four percent target, BSP may postpone rate hikes to the second half especially if the next Fed policy rate increase occurs only in the second quarter,” it added.

The BSP earlier said it expects inflation in February to range within a 3.1 percent to 3.9 percent band. The inflation in January was 2.7 percent.

BSP Governor Amando M. Tetangco said inflation upticks are however only temporary since upside factors are coming from the supply side. He noted that the increase in domestic petroleum prices, jeepney and taxi fares, and electricity fares of Meralco-serviced areas “could exert upside pressures to inflation during the month.”

The BSP sees average inflation of 3.5 percent for this year and 3.1 percent for 2018. The 2017 and 2018 forecasts are higher than previous estimates of 3.3 percent and three percent.

During its last policy meeting, the BSP’s Monetary Board said the risks to the inflation outlook “continues to be weighted toward the upside, given possible adjustments in electricity rates as well as the initial impact of the government’s broad fiscal reform program.”

On global risks, the BSP continues to see this as challenging particularly with the ongoing normalization of US policy rates. But, it added, domestic activity “is expected to stay firm, supported by buoyant household consumption and private investment, increased fiscal spending and ample credit and liquidity.”