• Analysts: Dec inflation at 2.6%-2.8%


    Full year seen at 1.7%-1.8%
    HEADLINE inflation likely accelerated further in December, bringing the full-year average closer to the upper end of the central bank’s forecast range, analysts polled by The Manila Times, said.

    Seven analysts said December inflation could have settled within the 2.6 percent to 2.8 percent range, which lies nearer the higher end of the 2.2 percent to 3 percent band estimated earlier by the Bangko Sentral ng Pilipinas (BSP).

    Inflation accelerated to 2.5 percent in November from 2.3 percent in October.

    But based on analysts’ estimates of the December rate, inflation for the full year could average 1.7 percent or 1.8 percent, which is in line with the central bank’s forecast average for 2016, although below the 2 percent to 4 percent cap range set for that year.

    In December 2015, inflation settled at 1.5 percent, brining the full-year rate to 1.4 percent. The official December and full-year 2016 numbers are scheduled to be released on Thursday by the Philippine Statistics Authority.

    Providing the highest estimate was Guian Angelo Dumalagan, market economist at Land Bank of the Philippines, who said December inflation may come in at 2.8 percent, driven primarily by the peso’s depreciation and the rise in oil prices.

    “A weaker peso makes dollar-denominated goods and services more expensive in peso terms. In fact, this is the reason why the generation charge component of Meralco’s electricity rate surged this month,” he said.

    “Regarding oil prices, they have increased by more than 20 percent year-on-year in December 2016 due to the output cut agreement among OPEC [Organization of Petroleum Exporting Countries] and non-OPEC producers. This uptick represents a recovery from November’s slight annual decline in global crude costs,” he explained.

    Moreover, inflation might have picked up last month due to increased consumer demand during the Christmas season, he added.

    With that, Dumalagan concluded that December inflation might bring the full-year average close to 1.8 percent, which is the BSP’s inflation forecast for 2016.

    “From now until 2020, a 2 percent to 4 percent inflation target might be feasible, especially since the recovery in oil prices is expected to be gradual. There might be more inflationary pressures in the future due to the peso’s relative weakness against the dollar and the current administration’s plan to increase public spending,” he said.

    Lastly, he added that the BSP might tighten its monetary policy settings in the near term to maintain economic stability amid rising consumer prices and higher capital outflows due to likely stronger US growth.

    Rajiv Biswas, Asia-Pacific chief economist IHS Markit, said inflation could have picked up to 2.7 percent, pushed by the impact of rising oil prices, higher electricity prices, as well as the effect of the recent peso depreciation on import prices.

    “Despite the recent upturn in CPI [consumer price index]inflation at the end of 2016, the full calendar year average CPI inflation rate for 2016 is expected to be 1.8 percent, still below the lower end of the BSP’s 2 percent to 4 percent CPI target range. This is expected to keep the BSP on hold in early 2017 as inflationary pressures still remain within their inflation target range,” he said.

    However, Biswas said the outlook is for average CPI inflation to move higher in 2017, averaging 2.8 percent for the 2017 calendar year “due to the impact of higher average world oil prices following the recent OPEC decision to cut oil production by 1.2 million barrels per day as well as rising import costs due to recent PHP depreciation.”

    He said the peso is expected to remain weak against the US dollar in 2017, with a risk of further depreciation against the greenback as the US Federal Reserve is expected to hike rates three more times in 2017.

    Bank of the Philippine Islands Vice President and lead economist Emilio Neri Jr., and Ateneo de Manila University economist Alvin Ang held the same forecast, but did not elaborate on the factors behind it.

    Diana del Rosario, Deutsche Bank economist, expects inflation to have also increased to 2.6 on the back of higher food prices during the holidays.

    “Inflation likely averaged 1.8 percent in 2016. We see inflation rising to 3.3 percent in 2017, but we do not think this would prompt rate moves by the BSP, given that inflation would just enter the 2 percent to 4 percent target range of the central bank,” she said.

    This forecast were shared by Chidu Narayanan of Standard Chartered Bank and Harish Gupta of Barlays.

    Central bank Governor Amando Tetangco Jr., in explaining the central bank’s 2.2 percent to 3 percent projection for December, had said: “Upside pressures from reported increases in the prices of petroleum products, rice, and power rates in Meralco-serviced areas, as well as the weaker peso, could be partly offset by lower LPG prices during the month.”


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