Inflation slowed to 1.4% in 2015 on cheaper oil

The increase in consumer prices in 2015 slowed to 1.4 percent— compared to 4.1 percent recorded a year ago—due to cheaper gasoline, as well as food and utilities, the Philippine Statistics Authority (PSA) said on Tuesday.

The National Economic and Development Authority (Neda) said the generally low-inflation environment last year was “expected.” The average inflation in 2015 was lower than the 2 percent-to-4 percent government target.

“[The low inflation] was largely due to favorable supply-side factors, such as relatively lower domestic retail
prices of corn, oil and rice; lower international oil prices of housing and other utilities,” Economic Planning Secretary Arsenio M. Balisacan said in a statement.

Compared to 2014 rates, the PSA said the annual average add-ons in all the commodity groups slowed down during the year with the indices for housing, water, electricity, gas and other fuels and transport registering negative annual average rates of 1.3 percent and 0.1 percent, respectively.

“The annual average rate of the food alone index in the Philippines decelerated to 2.6 percent in 2015. It was 7 percent a year ago,” the PSA said.

Excluding selected food and energy items, core inflation eased to 2.1 percent in 2015 from 3 percent posted a year ago.

In December alone, the increase in demand for food and energy pushed inflation to 1.5 percent from 1.1 percent in November.

“Price increases were largely due to the upbeat demand during the holiday season. Inclement weather conditions, primarily Typhoon Nona, also adversely affected agricultural areas, hampering the production, delivery and transport of products, which, in turn, pushed up prices,” Balisacan said.

Economists said Filipinos should brace for higher prices in the coming months due to El Niño and the 2016 presidential elections. They said inflation may average 2 percent to 3 percent this year.

“Inflation this year will be higher than last year given election spending, higher food costs due to drought, and possible spikes in oil prices in the second half of 2016,” University of Asia and the Pacific School of Economics Dean Cid Terosa said. “It could be higher than 2 percent, but not beyond 3 percent.”

Alvin Ang, senior fellow of Ateneo de Manila University’s economic forecasting unit Eagle Watch, said food and oil prices will be the “key drivers” of inflation this year.

“[In 2015, inflation was low because of] base effect plus low oil prices. But this is not the case for 2016, it could be above 2 percent on average,” Ang said. “[The main drivers are] food prices and oil prices, as well as the El Niño.”

Former Budget Secretary Benjamin E. Diokno, for his part, said inflation would likely average 2 percent to 2.5 percent in 2016 on the back of the same reasons cited by Ang and Terosa. Diokno said overall inflation will be tame in 2016 as long as oil prices remain low and the impact of El Niño on food prices will be minimal.

“Inflation should be the least of policymakers’ worry,” Diokno said. “It is expected to be equally subdued in 2016 for as long as oil prices stay near rock bottom and El Niño in the first half of 2016 remains tame.”

An official of the Philippine Chamber of Commerce and Industry (PCCI) said low inflation is “good” for the country as this means that products are more affordable.

PCCI President George T. Barcelon said the average inflation rate recorded in 2015 “reflects the inclusiveness” of growth.

“If the inflation we have is propelled by domestic growth and not by external factors, then that is sustainable. Inflation should be at least in the middle of the [government’s] target range, not at the low-end [of the target],” Barcelon said. –Cai Ordinario, Businessmirror

(With a report from Catherine N. Pillas)