Policy rates seen steady till year-end
Headline inflation in October likely settled between 2.2 percent and 2.6 percent in an estimate by analysts polled by The Manila Times, a range which falls in line with government expectations due to higher oil and food prices and lower electricity rates.
In September, inflation picked up to 2.3 percent from 0.4 percent a year earlier.
The Bangko Sentral ng Pilipinas (BSP) is expecting inflation data for October to come in at the 1.9 percent to 2.7 percent range as a result of higher oil and food prices—despite softer rice prices and power rates.
The Department of Finance, on the other hand, said inflation could have picked up pace to 2.5 percent on base effects.
Of the seven analysts in The Times’ survey, Metrobank Research’s Pauline May Ann Revillas gave the highest estimate of 2.6 percent, based on a general increase in the prices of gasoline and food items, except rice.
“We still expect the BSP to keep policy rates steady until yearend,” she added.
Analysts from ANZ Research, IHS Markit and Banco de Oro (BDO) Unibank estimate inflation at 2.4 percent on the back of higher food and oil prices.
Vegetable prices are still rising because of limited harvests, while pump prices have been raised over the month, adding to the upside pressure in headline price gains, said economist Eugenia Fabon Victorino of ANZ Research.
“This will still keep the 2016 average inflation below the central bank’s inflation target. We reiterate our expectation for the central bank to maintain its policy settings through the end of 2016 and pencil in a rate hike in the third quarter of 2017,” she said.
IHS Markit chief economist Rajiv Biswas noted the impact of world crude prices would push the inflation rate in October, with recent typhoons affecting agriculture output and food prices.
“With inflation remaining towards the lower end of the BSP target range, the central bank is expected to keep monetary policy on hold in the near-term,” he said.
Jonathan Ravelas, BDO Unibank chief market strategist, did not expound on his forecast.
Betting on inflation to be steady at 2.3 percent are analysts from University of Asia and the Pacific (UA&P) and Deutsche Bank.
Milder rice prices and slightly lower electricity rates will offset the impact of higher fuel prices, said UA&P economist Victor Abola. “No special movements in other items. No change in monetary policy stance.”
Deutsche Bank economist Diana del Rosario noted “the likely faster increases in food and crude oil prices were likely offset by a slower increase in utility rates.”
The lowest estimate of 2.2 percent comes from Bank of the Philippine Islands (BPI) associate economist Nicholas Antonio Mapa, citing the impact of lower costs of food and logistics.
“September was the first month this year (and perhaps in a while) that we saw all sectors contributing positively to inflation prints and we can expect this trend to continue in October,” he said.
La Niña will affect food prices as well as the typhoons that struck the country with an estimated damage to agriculture pegged at P10.2 billion. This puts pressure on prices, given the hefty weight of food in the overall consumer price index.
“Meanwhile, crude oil is set to average roughly $49.8/barrel in October 2016 versus $46.59/barrel in October 2015, solidifying expectations that oil price gains will manifest directly in transport and indirectly via second round effects,” he said.
The BPI economist noted the weaker peso will also bring back the return of imported inflation, but the BSP will keep its policy steady for the rest of 2016 in light of benign inflation trends.
“Next year we may see the BSP resorting to hiking rates, as well as whittling down the RRR [reserve requirement ratio]as TDF [term deposit facility]rates have begun to get off the 2.5 percent floor,” he added.