Finance Secretary Carlos Dominguez III assured the public that “the cycle of elevated inflation has peaked” and will subside over the next few months following the measures that the government put in place to address the supply problems on rice and other food items.
“We responded decisively to the challenge posed by elevated inflation rates,” Dominguez said. As a result, the government expects inflation to further slowdown in 2019.
Inflation peaked in October at a nine-year high of 6.7 percent before easing to 6 percent in November. Latest estimate from the Bangko Sentral ng Pilipinas showed inflation eased further to 5.2 percent in December.
Dominguez said government estimates showed that the Tax Reform for Acceleration and Inclusion contributed only 0.4 to 0.7 percentage points to the total inflation rate in 2018 even with the impact of the fuel excise tax adjustments, the tax on sugar-sweetened beverages and the increased excise tax on tobacco products.
Inflation rose in the third quarter of the 2018 as a result mainly of food supply pressures induced by seasonal and adverse weather conditions, the strong US dollar and the surge in global oil prices.
President Rodrigo Duterte issued Administrative Order 13, which removed administrative restrictions on the importation of agricultural products.
Duterte also issued Memorandum Order 26 directing the Agriculture and the Trade departments to implement measures to reduce the gap between the farmgate and retail prices of agricultural products.
MO 27, meanwhile, ordered the DA, Department of the Interior and Local Government, Philippine National Police, and the Metropolitan Manila Development Authority to “adopt measures to ensure the efficient and seamless delivery” of imported agricultural and fishery products from ports to markets.
Meanwhile, MO 28 directed the National Food Authority to immediately release existing rice stocks in its warehouses.
The Bangko Sentral ng Pilipinas, for its part, raised interest four times since May 2018 for a total of 175 basis points.
S&P Global Ratings and Nomura Global Research expect the Philippines to ride through the regional economic slowdown in 2019, owing to stronger domestic demand, a boost from election expenditures and the increased public spending on infrastructure.
S&P sees the Philippines’ GDP growth improving to 6.4 percent next year from a 6.2 percent forecast for 2018, while Nomura Global Research said growth would improve to 7.1 percent from 6.3 percent.
Nomura Securities Ltd. reduced its 2018 inflation forecast to 5.2 percent from 5.4 percent and the 2019 inflation outlook to 3.7 percent from 4.4 percent.
“With headline inflation falling more sharply, we think inflation expectations will also start to adjust lower in the coming months, given they tend to form adaptively,” Nomura Securities said.
The Bank of the Philippine Islands expects inflation to decline further to 3.6 percent next year, even if the second tranche of the oil excise tax increase under the Tax Reform for Acceleration and Inclusion Act pushes through.