Interest rate increase seen in 2017
HEADLINE inflation in November likely settled between 2 percent and 2.4 percent, according to estimates by analysts polled by The Manila Times, falling within government expectations due to higher oil and food prices and lower electricity, utilities and transport costs.
In October, inflation picked up pace at 2.3 percent from 0.4 percent a year earlier.
The Bangko Sentral ng Pilipinas (BSP) expects inflation data for November to come in at the 1.6 percent to 2.4 percent range, citing the impact of lower oil, food, and cooking gas prices and a weaker peso.
Of the eight analysts surveyed by The Manila Times, Bank of the Philippine Islands Vice President and lead economist Emilio Neri Jr. gave the highest estimate of 2.4 percent.
“Lower electricity cost was outweighed by faster increases in petroleum and food prices,” he said.
On the other hand, DBS economist Gundy Cahyadi sees the inflation rate remaining steady at 2.3 percent, noting that the BSP is likely to keep its interest policy rates steady at its last meeting for the year.
“The BSP is in no rush to raise interest rates. But if the growth-inflation dynamics progresses as expected, two 25-bps [basis point]rate hikes seem imminent for first-half 2017,” he said.
Standard Chartered Bank economist Chidu Narayanan forecasts a lower November inflation rate of 2.2 percent as low transport costs offset higher food, housing and utility prices.
“We expect that food and non-alcoholic beverage inflation, which makes up 39 percent of the CPI [consumer price index]basket, likely remained high in November as well, after contributing 1.31 ppts [percentage points]to the headline increase in October,” he explained.
“Core inflation has been below trend so far, but has edged up to the lower end of the BSP’s target inflation. We expect inflation to average 1.8 percent in 2016 before rising to average 2.9 percent year-on-year in 2017,” he said.
Analysts from ANZ Research as well as IHS Markit estimate inflation at 2.1 percent on the back of higher food and lower fuel and transport costs.
“Transport and utility prices likely posted monthly contractions. However, this should have been partially offset by the food price gains as the country still deals with the effects of bad weather,” said economist Eugenia Fabon Victorino of ANZ Research.
Rate hike by Q3 2017
With strong household spending and robust private investment, she said the BSP will likely be the first central bank in the region to tighten its policy.
“Considering the expansionary stance of the government and the central bank’s 15- to 24-month monetary policy transmission lag, we forecast the BSP to resume its tightening by the third quarter of 2017,” she said.
IHS Markit chief economist Rajiv Biswas said inflation pressures are expected to ease in November, helped by lower retail petrol prices and moderate pricing pressures in other key sub-categories of the CPI index basket such as food.
“Base year effects are also expected to help reduce the headline CPI inflation rate due to a significant increase in monthly inflation a year ago,” he said.
Biswas said with inflation for the first 10 months of 2016 averaging 1.6 percent year-on-year, the calendar year average CPI inflation rate for 2016 is estimated to be 1.7 percent year-on-year, a touch below the BSP’s annual 1.8 percent CPI forecast for calendar 2016.
“With monthly CPI inflation running at the lower end of the central bank’s inflation target range, the BSP is expected to keep policy rates on hold in the near term,” he said.
The IHS chief economist noted, however, that with the US dollar expected to appreciate further against the peso in the near term as the US Fed hikes rates in December and signals further rate hikes, the BSP will be focusing on the inflationary effects of the weaker peso on import prices.
“Another key concern for the BSP will be the impact on CPI inflation in early 2017 if world oil prices sustain their recent gains following the OPEC [Organization of the Petroleum Exporting Countries] ministerial meeting decision to cut oil production by 1.2 million barrels per day,” he said.
Meanwhile, Justino Calaycay Jr., marketing and research head of A&A Securities, provided an estimated November inflation range of 2.1 percent to 2.4 percent.
“Anticipation of an OPEC output cap had the oil markets pricing in a $50 per barrel level and, with the continued weakness in the peso, drove retail pump prices higher. Coupled with the onset of the traditionally high spending season, demand-side pressures may have also contributed,” he said.
Providing the lowest estimate of 2 percent were analysts from the University of Asia and the Pacific (UA&P) and Metrobank Research.
UA&P economist Victor Abola said November inflation rate should be slower than October due to lower rice, electricity and fuel prices.
“I think that the 1.8 percent forecast [of the BSP]for the full-year will easily be met, with just one month to go,” he said.
Metrobank Research analyst Pauline May Ann Revillas, on the other hand, expects lower food and gasoline prices contributing to a November inflation rate of 2 percent.
“We still see the BSP [keeping]policy rates steady until yearend,” she said.