Inflation seen to hover back to 2016 targets

After months of falling below target, inflation could finally hover back to the government’s target in the remainder of the year, an official of the Department of Finance said.

This was after consumer prices rose to their fastest in 18 months at 2.3 percent in September, falling within the central bank’s two to four-percent target for the year.

“Core inflation suggests that in the shortterm, headline inflation rate will be above two percent,” Finance Undersecretary Gil Beltran said in his economic bulletin dated Oct. 5.

Core inflation pertains to the long-run trend of inflation, which excludes transitory effects coming from volatile prices of food, oil and energy. The indicator hit 2.3 percent last month.

According to Beltran, last month’s result, as measured by the consumer price index, was largely driven by low base effects of just 0.4 percent from last year, and thus should not be a cause for concern.

“A continued regime of stable prices will provide cushion to absorb shocks to the economy and help sustain rapid economic growth,” he said.

This was driven highly by increase in oil and electricity prices, with Beltran pointing to adjustments made by the “big three” oil players namely Petron Corp., Pilipinas Shell and Caltex.

Specifically, he said average diesel prices in Metro Manila alone increased to P37.83 per liter from P25.39 in the same period a year ago.

This was partly offset by a decline in power prices from distributor Manila Electric Co., which implemented a 4.51-centavo decrease on monthly bills due to lower transmission charges.

“The apparent surge (in inflation) was largely a result of base effects,” Beltran said.

According to census data, inflation has fallen below the official target since May last year when they settled at 1.6 percent. The average for last year was 1.4 percent.

For this year, the Bangko Sentral ng Pilipinas (BSP) expects prices of basic goods and commodities to rise 1.7 percent this year, still below target.

On its meeting last Sept. 21, BSP decided to keep its policy rate steady at three percent on the back of low inflation.

The rate is used as benchmark of banks on interest they charge for lending to individuals and corporations. A lower rate should encourage more borrowers to borrow.