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Inflation rate climbed to 2.5% in December

Inflation rate in December climbed to a six-month high of 2.5 percent from 1.3 percent in November on faster increases in food and beverage prices during the holiday period, data from the Philippine Statistics Authority show.

The PSA, however,  said the December inflation was slower than 5.1 percent registered a year ago. This brought the full-year inflation to 2.5 percent, slower than the average of 5.2 percent in 2018, and within the government’s target range of 2 percent to 4 percent for the year.

Bangko Sentral ng Pilipinas Governor Benjamin Diokno said in a statement the December 2019 inflation was within the forecast range of 1.8 percent to 2.6 percent for the month. 

“The latest inflation outturn is consistent with the BSP’s prevailing assessment that inflation is expected to approach the midpoint of the target range in 2020 and 2021,” it said.

“The risks to the inflation outlook are on the upside for 2020, but are tilted to the downside in 2021. The volatility in global oil prices and the potential impact of the African Swine Fever outbreak are the main upside risks to inflation,” the BSP said.

Meanwhile, the impact of global trade and policy uncertainty as well as geopolitical tensions continued to be the main downside risks to inflation, it said.

“The  BSP will consider all the  latest economic developments here and abroad in the Monetary Board’s assessment to  ensure  that  the  monetary  policy  stance  remains  consistent  with  the  BSP’s price stability objective while being supportive of economic growth,” it said.

Economic Planning Secretary Ernesto Pernia said the recovery and rehabilitation plans for the typhoon-affected areas should be immediately implemented while the production support programs for the affected farmers and fisherfolks should be fast-tracked.

“Over the medium to long-term, the agriculture, forestry and fisheries sector must increasingly adopt climate and disaster-resilient technologies and best practices. Climate and disaster risks should also be considered in the program and project designs in the sector,” Pernia said.

Pernia said the escalating tension in the Middle East might disrupt global oil supply which could lead to a surge in the prices of petroleum products and overall inflation.

“The government should effectively manage expectations at the domestic front and be vigilant against any unwarranted increase in pump prices considering that the last tranche of excise tax increase on fuel products will be implemented this month,” he said.

He said that in the short-term, the demand management and alternative sources of petroleum products should be explored, and over the medium to long-term, shifting away from fossil fuel and import dependence should be encouraged.

ING Bank Manila senior economist Nicholas Mapa said the base effects from the 2018 price spike have all but faded out, pushing December headline inflation well-past market expectations (median forecast at 2.0 percent) to hit 2.5 percent.

“With full-year 2019 inflation at 2.5 percent, BSP was successful in keeping price gains in-check for the most of 2019.  Recent adverse weather conditions may have caused food prices to jump higher to close out the year with the food component showing a 1.7-percent increase in prices from no gain in November,” Mapa said. 

Mapa said he was expecting inflation to edge higher in 2020 as “reverse” base effects kick in while the scheduled excise tax of fuel products take effect sometime in early 2020.  

“This moves in-line with our expectation for inflation to ‘bounce then settle’ with headline inflation rising back to the 3-percent handle and remain stable for the rest of 2020.  Factoring the reverse base effects, we expect inflation to average 3.2 percent and as high as 3.4 percent should oil prices edge higher due to possible supply side disruptions,” Mapa said.

Hongkong and Shanghai Banking Corp. said headline inflation was expected to remain stable in 2020-2021 below the midpoint of the target range of the BSP.

“ This will leave room for the BSP to cut policy rates further by 25 basis points in the first quarter and another 25 bps in the second quarter of 2020, lowering the policy rate to 3.5 percent by end-2020,” Fan Cheuk Wan, HSBC managing director and chief market strategist for Asia, said in a news briefing in Taguig Tuesday.

She said another 200 bps cut in reserve requirements each in 2020 and 2021 could be expected, leaving the RRR at 10 percent by the end of 2021.

Topics: Inflation rate , Philippine Statistics Authority , Bangko Sentral ng Pilipinas , BSP Governor Benjamin Diokno
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