The Finance Department expects inflation rate to decelerate further in the months ahead because of declining global oil prices.
It said in an economic bulletin over the weekend low oil prices would pull down inflation in March.
“Lower energy prices dampened the effects of any price uptick in this group [non-food]. Power and fuel prices declined by as much as 1.1 percent month-on-month and transportation prices, by 1 percent month-on-month,” the agency said.
Data showed Dubai crude oil price dropped to $54.24 per barrel in February from $63.76/bbl in January and $64.32/bbl a year ago. This reflected a 14.9-percent month-on-month and 15.7 percent year-on-year decreases.
“Benign global oil prices will pull down inflation going forward,” it said, adding that “for inflation to fall within the target range, month-on-month price change should be at most 0.3 percent per month.”
The department said, however, that the disruption of global supply chains would tend to push prices up. “Domestic producers will need to look for alternative supply sources to avoid production cuts,” it said.
Initial data from the Bureau of Customs showed that imports from China, the country’s biggest trading partner and where the coronavirus disease 2019 originated, declined 34.7 percent volume-wise in February.
Philippine National Bank, the fifth-largest lender led by airline and tobacco tycoon Lucio Tan, said it was expecting the Bangko Sentral ng Pilipinas to have bigger policy rate cuts this year on slower inflation rate.
PNB Macro Research noted that inflation rate declined to 2.6 percent in February from 2.9 percent in January and 3.8 percent a year ago.
This brought the average inflation in the first two months to 2.75 percent, below the midpoint of the target range of 2 percent to 4 percent.
“COVID-19’s impact on February inflation [with emphasis on the lower oil/fuel price effects] resulted in a trajectory that turned benign compared to the pre-COVID outlook,” the report said.
PNB said that in March 2020, headline inflation could dip to 2.5 percent year-on-year. It said post-COVID, inflation could re-test 2.7 percent in June or July before probing 3 percent in the fourth quarter.
“On this benign trajectory amid downside risk to the growth outlook, we revise our BSP policy rate outlook to 3.25 percent by end-2020 [from previous 3.75 percent], expecting a 25-bps rate cut on March 19 and another 25-bps cut on May 21,” it said.