Analysts expect April inflation to settle at 3.3%-3.7%

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Higher utilities, food and fuel prices, partly mitigated by lower cooking gas prices, created price pressures to push headline inflation between 3.7 percent and 3.3 percent in April, according to analysts polled by The Manila Times.

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Six analysts in poll gave an average estimate of 3.5 percent, faster than the inflation rates a year earlier and last March.

In March, inflation surged to 3.4 percent from 3.3 percent in February. In April 2016, inflation settled at 1.1 percent.

The Bangko Sentral ng Pilipinas (BSP) estimates that inflation will settle within 3 percent to 3.8 percent.
The Philippines Statistics Authority is expected to release the April 2017 inflation report on Friday, May 5.

Estimates

German lender Deustche Bank and Australia’s ANZ Research placed last month’s inflation rate at 3.7 percent, by their views on central bank policy interest rates were mixed.

Deustche Bank based its inflation forecast on higher food prices and electricity rates.

“We still see the BSP keeping rates steady for the rest of the year, but risk of a tightening in our view is rising with inflation approaching the 4 percent upper end of the BSP’s target,” Deustche Bank economist Diana del Rosario said.

ANZ Research noted a strong demand should maintain a quickening in headline inflation at 3.7 percent last month. Economist Eugenia Victorino said utility prices rose on the back of higher generation charges and demand for electricity during summer.

“We also expect transport prices to have marginally risen with the rise in retail pump prices. We forecast core inflation to have climbed to 3.1 percent year-on-year,” she said.

Interest rate hikes should commence in the third quarter, leading to a cumulative tightening of 50 basis points in 2017, she added.

HIS Markit and BDO Unibank Inc. noted inflation must have hit 3.5 percent.

Rajiv Biswas, Asia-Pacific chief economist at IHS Markit, said the impact of higher tariffs on utilities and retail prices of petroleum products were mitigated by declines in the price of cooking gas.

Inflationary pressures are expected to stabilize in the second half of 2017, and fall within the central bank inflation target for the rest of the year. “This is based on our expectation that world oil prices will average around $55 for Brent crude during 2017,” Biswas noted.

Biswas warned a key risk to the inflation outlook would be the sharp peaks of world oil prices during the remainder of 2017, which could trigger significant inflation surges and monetary policy tightening, he added.

“With headline inflation having moved towards the upper end of the BSP’s target range and domestic economic growth momentum expected to remain strong during 2017, the BSP’s monetary policy stance is expected have a tightening bias with one rate hike expected later in 2017,” he said.

While the United States Federal Reserve is expected to hike rates two more times this year, the BSP’s monetary policy decision will focus on domestic inflation and economic growth in the Philippines, not on Fed policy moves, Biswas added.

BDO chief market strategist Jonathan Ravelas did not explain his 3.5 percent inflation forecast.

University of Asia and the Pacific economist Victor Abola said inflation could have stayed at 3.4 percent on relatively stable food and fuel prices.

An estimate 3.3 percent comes from Ateneo de Manila University economics professor Alvin Ang, largely on
higher electricity rates.

The BSP has factored in the pressures from higher oil prices and utility rates, lower cooking gas prices and a stronger peso in its inflation forecast.

“Upward adjustments in electricity and water rates as well as higher domestic fuel prices could be partially offset by lower LPG prices and the stronger peso,” BSP Governor Amando Tetangco Jr. said.

The Manila Electric Co. said a typical household consuming 200 kilowatt-hours a month would have to pay P0.23 more per kWh, or P9.89 per kWh from P9.67 per kWh, for a P46 increase in the total monthly bill.

Maynilad implemented 12 centavos per cubic meter increase in water rates, and Manila Water 26 centavos per cubic meter.

Oil companies raised pump prices of petroleum products in early April, increase diesel and gasoline by 35 centavos per liter and kerosene by 30 centavos. The price of liquefied petroleum gas was lowered by P5 per kg.

The peso firmed up and returned to P49:$1 level from P50:$1 last month. On Thursday, it closed P49.95:$1.
The BSP projects a 3.4 percent average inflation rate for the whole of 2017, which falls within the national government’s 2 percent to 4 percent target.

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