Inflation rate likely eased to 5.5% in Dec

The country’s annual inflation rate likely eased further to 5.5 percent in December from 6 percent in November on tempered food and energy prices, an economist from Dutch financial...

The country’s annual inflation rate likely eased further to 5.5 percent in December from 6 percent in November on tempered food and energy prices, an economist from Dutch financial giant ING said.

In a research note, ING economist Nicholas Mapa said that if inflation would continue to soften and return to the Bangko Sentral ng Pilipinas’ (BSP) target range of 2-4 percent by the second quarter of this year, the monetary authority could reverse some of the monetary tightening sanctioned last year.

“Cuts in the BSP’s policy rates are expected to be carried out even with the central bank widely expected to slash reserve requirements as early as the first quarter,” Mapa said.

For December, Mapa said index heavyweights food items and energy-related subindices could pull inflation below 6 percent as supply chains normalized while global energy prices plunged faster in November and December than they had risen from September to the 2018 peak in October.

ING’s December inflation forecast of 5.5 percent for the Philippines is lower than Bloomberg’s median estimate of 5.7 percent.

In November, the country’s inflation rate eased to 6 percent from 6.7 percent in October. For most of 2018, the upsurge in inflation had been a macroeconomic challenge for the country. This was a confluence of bad weather, rice supply bottlenecks, currency depreciation and higher consumer prices arising from a tax reform program. The BSP had been prompted to raise key interest rates five times for a total of 175 basis points last year.

Mapa said the fourth quarter harvest season and imports of grains had helped stabilize the supply and prices of most food items, citing the latest government bulletin showing that in the second week of December, rice inflation had softened to 10.03 percent from November’s 14.46 percent.

“Domestic pump prices have tracked the free fall seen in Dubai oil prices, with gasoline prices now below pre-2018 tax reform levels with diesel not far behind,” Mapa said.

“The November-December plunge convinced transport fare adjustments to be rolled back although the government has decided to proceed with the second tranche of its excise tax adjustment to fuel (gasoline and diesel) of P2 for 2019,” he said.

With the supply-side bottlenecks mitigated or removed, Mapa said inflation pressures might dissipate quickly this year, barring any supply issues.

The rice tariffication law that will liberalize the importation of rice is now awaiting President Duterte’s signature. With oil prices sliding to levels last seen in mid-2017, Mapa said risks to the inflation outlook appeared more tilted to the downside.

However, he said upward pressure loomed with possible extreme weather conditions arising from a projected El Niño dry spell in the first half of 2019 while surprise supply cuts from oil-producing countries could cause the recent plunge of crude oil prices to reverse.

 

article shared from https://business.inquirer.net/263022/inflation-rate-likely-eased-to-5-5-in-dec
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