The local unit of ING Bank expects the inflation rate in December to slow down to 5.5 percent from 6 percent in November, on lower oil prices and the normalization of food supply during the fourth-quarter harvest season.
“Index heavyweights food items and energy-related sub-indices are seen to pull inflation below the 6 percent handle as supply chains normalize and global energy prices plunged faster in November and December than they rose from September to the 2018 peak in October,” ING Bank Manila senior economist Nicholas Mapa said in a report Wednesday.
“The fourth-quarter harvest season and imports of grains have helped stabilize the supply [and price] for most food items with the latest government bulletin showing second week December rice inflation at 10.03 percent compared to November 2018’s 14.46 percent,” Mapa said.
He said domestic pump prices also tracked the freefall seen in Dubai oil prices with gasoline prices now below pre-2018 tax reform levels and diesel not far behind.
Mapa said the 2018 inflation zoomed well-past BSP’s inflation target range of 2 to 4 percent as a confluence of bad weather, disrupted supply chains, currency depreciation and tax reform fomented cost-push inflation.
“With these supply-side oriented bottlenecks mitigated or removed, we can expect inflation pressures to dissipate quickly and the overall headline print to slide in 2019, barring any return of these supply issues,” he said.
He said with the Rice Tarrification law all-but waiting President Duterte’s signature and oil prices sliding to levels last seen in mid-2017, “risks to the inflation outlook appear now more tilted to the downside although upward pressure looms with possible extreme weather conditions with El Niño forecasted in the first half of 2019 while surprise Opec supply cuts can cause crude oil’s recent plunge to reverse.”
The Bangko Sentral ng Pilipinas said last week inflation in December likely eased to as low as 5.2 percent from 6 percent in November, pulled down by lower prices of rice and petroleum products.
The BSP’s Department of Economic Research predicted that the December 2018 inflation would settle within the 5.2 percent to 6 percent range.
“The sustained slowdown of inflation during the month is seen to be driven mainly by the continued decline in petroleum and rice prices, the rollback in minimum jeepney fare, and the slight appreciation of the peso,” it said.