Inflation to hit peak in 3rd quarter

by Melissa Luz T. Lopez, Businessworld, Mar 26, 2018

INFLATION is expected to keep rising to hit a peak in July to September, the Bangko Sentral ng Pilipinas (BSP) said, but maintained that price pressures will remain temporary and manageable.

The worst is not over for price increases for basic goods and services, with the central bank seeing inflation rising further later this year.

“In terms of our preliminary estimates… we expect inflation to peak by the third quarter of the year. Thereafter, we should be seeing on a monthly basis an inflation rate of four percent or lower than four percent,” BSP Deputy Governor Diwa C. Guinigundo told reporters last week.

“That’s the reason why you have an inflation forecast of three percent for 2019. In the last quarter of 2018, we should be seeing 2-4% or lower monthly inflation.”

As of its March 22 meeting, the Monetary Board expects inflation to average 3.9% this year using 2012 as the new base year for consumer prices, which would jump from the 2.9% rate tallied in 2017. This would be the quickest pickup in prices under the new base.

Under the original 2006 base year, inflation will soar to 4.5% from last year’s 3.2%.

These compare to the central bank’s annual inflation target of 2-4%.

The BSP kept rates steady on Thursday even as headline inflation continued its ascent for three straight months, hitting a three-year peak in February at 3.9%, according to the Philippine Statistics Authority. The BSP said February’s inflation print reflects the full pass-through cost of the Tax Reform for Acceleration and Inclusion (TRAIN) law after it took effect Jan. 1.

TRAIN imposed an additional P2.50 excise tax per liter of diesel and P3/liter for kerosene, which came at a time of three-year highs for world crude prices. The new law also introduced additional taxes on cars, coal, sugar-sweetened drinks and a host of other items that likely drove up prices of other widely-used goods and services.

BSP Governor Nestor A. Espenilla, Jr. has said that they acknowledge that inflation will be “accelerated” within 2018, but noted that prices “will come down soon enough within the policy horizon.”

“Today, we don’t see evidence of propagation of inflationary pressures that would threaten our projected path by 2019 of inflation coming down to within-target levels. Nonetheless, there are risks to that outlook,” Mr. Espenilla said.

Mr. Guinigundo said they do not see a strong push for an increase in wages as well as transport fare hikes, which were previously expected to stoke inflation, while cash transfers to poor sectors as well as the proposal to replace rice imports quotas with tariffs are expected to mitigate upward pressures. —