Private sector economists expect inflation to accelerate this year and next because of rising oil prices in the global market, tax reform implementation and higher government spending.
Results of Bangko Sentral ng Pilipinas’ survey of private sector economists for March 2017 showed that the mean inflation forecast for 2017 rose to 3.4 percent from 3 percent in the December forecast. The average inflation forecast for 2018 also went up to 3.5 percent from 3.1 percent.
“Analysts attributed their higher inflation expectations to a weaker peso, persistently high global oil prices, the implementation of tax reform, rise in electricity rates due to higher oil prices and maintenance shutdown of some power plants and higher government spending on infrastructure,” Bangko Sentral said.
The increase in the mean inflation forecast also accounted for the possible occurrence of El Niño dry spell in the latter part of 2017 and possibly a transport fare hike as a result of higher oil prices.
“These were seen to outweigh the downside risks brought by a possible return to low global oil prices, the slowdown of the Chinese economy and the yuan devaluation, as well as the risk of recession and deflation in Japan and the Eurozone,” it said.
Based on the probability distribution of the forecasts provided by 23 of 30 respondents, there was an 88.6 percent probability that average inflation for 2017 would settle between the 2 percent to 4 percent range.
Respondents assigned an 84.9-percent probability that inflation would also fall within the 2 percent to 4 percent target range in 2018.
Inflation in March picked up to 3.4 percent from 3.3 percent in February, on higher prices of electricity, gas and other fuels. It was the fastest since November 2014 at 3.7 percent.
This brought the average inflation in the first quarter to 3 percent, the midpoint of the government’s target range of 2 percent to 4 percent for the whole year.
Inflation in the non-food group accelerated to 2.8 percent from 2.5 percent in February 2017, and from 0.4 percent in March 2016. This was mainly due to the faster year-on-year price adjustments of electricity, gas and other fuels which rose to 9.3 percent.
The hike was partly caused by a 20-day maintenance shutdown in the Malampaya natural gas field, resulting in the closure of three power plants”•Ilijan, Sta. Rita and San Lorenzo. The shift to liquid fuel from natural gas pushed up household electricity rate to P9.67 per kilowatt-hour.
Other sub-commodity groups that pushed the inflation of non-food items upwards were furnishing, household equipment and routine maintenance of the house.
Meanwhile, inflation in the food group decelerated to 4.2 percent in March from 4.3 percent in the previous month. This was due to slower price adjustments in fish, fruits, vegetables, sugar, jam, honey, chocolate and confectionery and other food products.
Inflation in rice and meat rose to 2.3 percent and 3.2 percent, respectively, partly due to importation constraints imposed by the government.
The manageable inflation and robust economic growth were the main reasons why the Monetary Board kept the benchmark interest rates in its last meeting on March 23.