Aug inflation likely higher at 2.9% – poll


Inflation likely picked up in August as power, food and fuel prices rose due to factors such as a weaker peso and a bird flu outbreak, analysts polled by The Manila Times said.

Forecasts for the month ranged from 2.8 percent to 3.1 percent with a 2.9 percent average, slightly higher than the 2.8 percent recorded in July.

The Philippine Statistics Authority is scheduled to release August inflation data tomorrow, September 5.

All nine analysts expect last month’s inflation to surpass the year-ago rate of 1.8 percent given consistently higher consumer price growth since the start of 2017.

Outlooks were mixed, however, with regard to monetary policy settings. Some said key interest rates were likely to remain unchanged this year given still-benign inflation but others forecast a fourth-quarter tightening.

The Bangko Sentral ng Pilipinas (BSP), which last month raised its inflation forecasts for this year up to 2019, has said that August inflation could fall within a 2.6 to 3.4 percent range.

Monetary authorities have noted that their estimates – 2017 is expected to see inflation averaging 3.2 percent – remain within the 2.0 to 4.0 percent target.

Highest estimate
IHS Markit had the highest forecast of 3.1 percent for August inflation, with economist Rajiv Biswas citing higher world oil prices and the peso’s depreciation.

“Some increases in retail petrol prices were implemented in the Philippines in August, contributing to the uptick in CPI [consumer price index]inflation. Further moderate depreciation of the peso against the USD during August is also contributing to higher import prices, notably for key imports such as petroleum products and natural gas,” Biswas said.

Just last week, oil companies raised pump prices for gasoline, diesel and kerosene.

The peso, meanwhile, has fallen into P51 per dollar territory as the prospect of war on the Korean peninsula spooked investors.

Still, Biswas noted that headline CPI would still be around the mid-point of the BSP’s target, allowing monetary authorities to keep policy settings on hold until the end of 2017.

The Bangko Sentral — after lowering its reverse repurchase rate to 3 percent from 4 percent in May last year ahead of the adoption of an interest rate corridor system — kept its policy rate unchanged at its August 10, 2017 meeting.

“However, with domestic economic growth momentum still strong and continuing rapid growth in domestic credit expansion, the BSP is still expected to have a slight tightening bias,” Biswas said.

Other price pressures
Analysts from Australia’s ANZ Research, University of Asia and the Pacific (UA&P) and Land Bank of the Philippines (LandBank, meanwhile, believe inflation rose to 3 percent in August.

“The prices of meat and fish advanced as the avian flu hit prices of poultry and eggs. Meanwhile, transport prices likely gained, reflecting the increase in global oil prices,” ANZ Research economist Eugenia Victorino said.

The Agriculture department in August announced a massive bird cull following a bird flu outbreak in provinces near Metro Manila. The crisis was declared over last Thursday.

“Despite inflation likely staying anchored to the target range, we are increasingly cautious of the acceleration of credit, specifically the persistently high growth of credit to the real estate and construction sectors. For this reason, we are still pencilling in monetary tightening to begin in fourth quarter 2017,” Victorino said.

UA&P economist Victor Abola, meanwhile, said the peso’s depreciation had a slight effect on inflation. “I don’t think it will change BSP’s neutral stance for the rest of the year,” he added.

LandBank market economist Guian Angelo Dumalagan for his part said consumer prices likely increased amid higher government spending.

“The sideways movement of oil prices for the month may have caused inflation to remain below the BSP’s revised forecast of 3.2 percent for 2017,” he explained.

Dumalagan said the uptick in domestic inflation, together with rising US interest rates, had increased the chances of a rate hike this year.

Analysts from Metropolitan Bank & Trust Co. (Metrobank) Research, Bank of the Philippine Islands (BPI), Dutch financial institution ING Bank Manila and Singapore’s DBS, meanwhile, believe August inflation rose just a notch to 2.9 percent.

Metrobank Research head Marc Bautista also tagged power, fuel and food costs but noted mixed movements for the latter, with rice and fruit prices having gone up while vegetables and some seafood items became more affordable.

“We don’t expect any changes in the policy rates for the rest of the year given benign inflation expectations,” he said.

BPI Vice-President and lead economist Emilio Neri Jr. did not elaborate on his forecast but said: “A low print should demonstrate that even a near 10 percent year-on-year Philippine peso depreciation has minimal pass-through effect on inflation.”

Overheating concerns are misplaced, he said, adding that the bigger challenge for the economy is sustaining capacity expansion through the continuous absorption of much needed capital goods imports.

“This implies BSP does not have to adjust policy settings any time soon,” Neri added.

ING Bank Manila senior economist Joey Cuyegkeng, meanwhile, said offsetting price pressures would likely keep inflation around 3 percent in the very near term.

“BSP likely to keep policy settings steady until the December meeting [during]which we expect BSP to embark on a measured tightening such as a 25 basis points hike to avoid overheating possibilities in 2018 and 2019 as the domestic economy sustains robust growth,” he said.

DBS economist Gundy Cahyadi did not explain his 2.9 percent forecast.

Banco de Oro Unibank Inc. market strategist Jonathan Ravelas also did not elaborate on his 2.8 percent inflation forecast, the lowest in The Manila Times poll.


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