Analysts consensus: Aug inflation at 2%

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Full-year 2016 likely below govt target of 2-4%
Headline inflation in August likely picked up to 2 percent from 1.9 percent in July and 0.6 percent a year earlier, according to a consensus of estimates by analysts polled by The Manila Times.

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The consensus is in line with an earlier forecast by the Department of Finance (DOF), citing higher prices of alcoholic beverages, tobacco products and transport costs.

Of the nine analysts in The Times’ survey, Metrobank Research analyst Pauline May Ann Revillas gave the highest estimate at 2.2 percent on the back of higher food and oil prices. “We expect policy rates to remain unchanged until yearend,” she said.

The central bank expects inflation at a relatively moderate pace of 1.6 percent because of lower electricity and vegetable prices.

However, the central bank is also betting that it could have picked up pace at 2.4 percent, with the upside coming from domestic prices of oil and rice.

Fuel prices are a key factor in the estimate of Deutsche Bank economist Diana del Rosario, who pegged inflation at 2.1 percent year-on-year.

The average for the whole of 2016 will likely fall below 2-4 percent range of the Bangko Sentral ng Pilipinas (BSP), she said.
“The Philippines’ robust economic activity does not warrant looser monetary conditions, in our view. As such, we see the BSP keeping the reverse repurchase rate and the reserve requirement ratio steady through year-end,” she added.
In its August 11 meeting, the policy-setting Monetary Board kept the rate for reverse repurchase transactions at 3 percent and the reserve requirement at 20 percent.

Base effects
Also betting on a 2-percent inflation rate in August were analysts from Nomura, IHS Markit, Standard Chartered Bank and ING Bank Manila.

Euben Paracuelles of Nomura said August inflation was driven by less favorable base effects. “I think limited implications for BSP at this point so I would still expect them to stay on-hold this year.”

Rajiv Biswas, the chief economist at IHS Markit Asia-Pacific, noted the impact of higher pump prices of petroleum products in the latter part of August was offset by reductions in residential electricity costs.

“With Philippines GDP [gross domestic product]showing strong expansion during the first-half 2016 and CPI inflationary pressures still towards the lower end of the BSP inflation target range, the BSP is expected to keep policy rates on hold at its next monetary policy meeting,” Biswas said.

StanChart economist Chidu Narayanan saw inflation clocking in at 2.7 percent year-on-year. “Utilities, which has the second-highest weighting in the consumer price index basket, may have remained flat for the month. Housing inflation, which accounts for almost a quarter of the basket, fell to 0.2 percent year-on-year, continuing its deflationary trend.

“We expect transport inflation to have remained low as well,” he added.

Offsetting price pressures from lower power rates, higher retail prices of oil products could have resulted in a mildly higher inflation last month, said Joey Cuyegkeng, senior economist at ING Bank Manila.

Sequential pressures
The lowest estimates of 1.9 percent came from HSBC, ANZ Research and Banco de Oro (BDO) Unibank Inc.

HSBC economist Joseph Incalcaterra said inflation in August held steady from July at 1.9 percent, as sequential price pressures were subdued. “Retail petrol prices subsided during the month in line with global oil prices, and although food prices likely accelerated somewhat during the month, they are still relatively contained.”

For HSBC, the tepid inflation data should help reaffirm the BSP’s current monetary stance over the medium-term.

“The only uncertainty is when the BSP will lower the RRR [reserve requirement ratio], but recent remarks from Deputy Governor [Diwa] Guinigundo seem to suggest this will not be done over the short-term,” Incalcaterra said.

Lower electricity rates and higher pump prices likely kept inflation at 1.9 percent in August, said ANZ Research economist Eugenia Victorino.

“Electricity prices declined over the month. The Wholesale Electricity Spot Market (WESM) decreased as the supply situation improved. This should be partially offset by the seesaw in retail gasoline and diesel prices,” she said.

BDO chief market strategist Jonathan Ravels did not expound on his forecast.

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