Inflation hits 2-year high of 2.6% in Dec 8%

By Lawrence Agcaoili (The Philippine Star), January 6, 2017

MANILA, Philippines – Consumer prices rose faster to hit a two-year high of 2.6 percent in December from 2.5 percent in November due to higher food prices as well as higher increment in transport, recreation, and culture during the Christmas season, the Philippine Statistics Authority (PSA) reported yesterday.

This brought the average inflation to 1.8 percent in 2016 from 1.4 percent in 2015, below the two to four percent target set by the central bank. Inflation last month was also the highest since hitting 2.7 percent in December 2014.

Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. said the December inflation was well within the central bank’s forecast range of 2.2 to three percent.

“The inflation prints are expected, and in line with our assessment that inflation would be inching up towards the national government target over the balance of the policy horizon,” Tetangco said.

Monetary authorities adopted the inflation targeting framework of monetary policy in 2002 focused mainly on achieving a low and stable inflation supportive of the country’s economic growth objective.

This is the second straight year that actual inflation did not fall within the BSP target. As such, the BSP governor is mandated to issue an open letter to the President outlining the reasons why actual inflation was lower than the target along with steps to be taken to bring inflation toward the target.

The BSP was able to achieve its inflation target from 2009 to 2014 and missed the target in 2015 and 2016.

“We will continue to monitor global and domestic financial market developments, shifts in global demand and supply of commodities, changes in global growth prospects to see how these would impact the domestic inflation dynamics, and whether there will be any need to make adjustments to our policy levers,” Tetangco said.

Socioeconomic Planning Secretary Ernesto Pernia said inflation is expected to stay within the two to four percent target for 2017 and 2018 amid higher oil prices, pending for adjustments in electricity rates, and strong domestic economic activity.

“The inflation outlook is supported by the country’s brisk domestic demand conditions, buoyed by solid private household spending, higher government expenditure, and adequate domestic liquidity,” he said.

Pernia, who is also director general of the National Economic and Development Authority (NEDA), also noted that the damage to rice resulting from Typhoons Karen, Lawin, and Nina could lead to faster inflation in early 2017. Rice comprises a sizeable portion of the consumer price index basket.

“The volatility in rice prices could affect the overall welfare of the Filipino families, particularly the poor who spend around 20 percent of their incomes on rice. Therefore, the government needs to promote more resilient practices for rice production to minimize the impacts of climate-related shocks,” Pernia said.

Core inflation – excluding food and energy items – ticked up to 2.5 percent in December from 2.4 percent in November, bringing the full-year average to 1.9 percent.

The consumer price index in the National Capital Region (NCR) accelerated to 2.7 percent in December from two percent in November, bringing the average inflation to 1.6 percent in 2016.

On the other hand, inflation in areas outside the National Capital Region remained steady at 2.6 percent in December bringing the full-year average to 1.9 percent.

Data released by the PSA showed higher annual increments in the indices of food and non-alcoholic beverages at 3.6 percent in December; transport, 1.9 percent; and recreation and culture at 1.7 percent.

The rest of the commodity groups either had slower annual add-ons or retained their previous month’s rate.

The annual change of the food index accelerated to 3.7 percent last month from 3.5 percent in November. However, average inflation of the food index remained steady at 2.6 percent in 2016.

Dec inflation From B-3

Higher annual rates were seen in the indices of rice and other cereals, flour, cereal preparation, bread, pasta and other bakery products, both at 1.6 percent; meat, 1.8 percent; fish, 5.5 percent; and vegetables, 11.5 percent.

During the rate-setting meeting of the Monetary Board last Dec. 22, authorities raised the inflation forecast for 2017 to 3.3 percent instead of three percent and for 2018 to three percent instead of 2.9 percent.

The forecasts were tweaked to take into consideration the impact of the stronger domestic economy, the depreciation of the peso against the dollar, and the rising oil prices.

The BSP likewise announced it was retaining the two to four percent inflation target for 2019 and 2020.

Joey Cuyegkeng, senior economist at ING Bank, said inflation is expected to average three percent this year and next year as “the risk t inflation is on the upside.”

“A low representation in the CPI from energy or oil prices would still generate some inflation pressures while second round effects would heighten such pressure. Commodity prices have also been firming up and could generate additional inflation pressures while a weak peso would contribute further to inflation pressures,” he said. – With Louise Maureen Simeon