Full-year average seen below 2016 target
THE central bank expects headline inflation in December to settle within the 2.2 percent to 3 percent range, which could curb the average rate for 2016 below the official target for the year.
The Bangko Sentral ng Pilipinas (BSP) had set a target range of 2 percent to 4 percent for inflation for the full year.
“The BSP forecast suggests that December inflation could settle within the 2.2-3.0 percent range. Thus, the full-year average inflation is likely to settle slightly below the low-end of the 2.0-4.0 percent target range in 2016,” BSP Governor Amando Tetangco Jr. said in a text message to reporters on Friday.
Such baseline forecast, which indicates that average inflation is likely to settle below the 3 percent ± 1 percentage point target in 2016, has been one of the main considerations of the BSP’s policy-setting Monetary Board when it decided on Thursday to keep its key policy rates unchanged for the moment.
At the monetary policy meeting, the board kept its reverse repurchase (RRP) facility rate at 3 percent, and the corresponding rates for overnight lending and deposit facilities at 3.5 percent and 2.5 percent, respectively. The reserve requirement ratio was also kept steady at 20 percent.
Pressures offset by lower LPG prices
The BSP’s December inflation estimate compares with the 2.5 percent headline inflation in November and 1.5 percent in December 2015.
“Upside pressures from reported increases in the prices of petroleum products, rice, and power rates in Meralco [Manila Electric Co.]-serviced areas, as well as the weaker peso, could be partly offset by lower liquefied petroleum gas prices during the month,” Tetangco said.
Earlier this month, petroleum companies raised gasoline and diesel prices by P1.40 per liter.
Meralco, however, could be adding more upward pressure to inflation. The electric distributor already warned there would be a slight rate increase of P0.1011 per kilowatt hour for a typical household this December after four straight months of reductions totaling P0.35/kWh.
This translates to an increase of about P20 in the total electricity bill of a household with a monthly consumption of 200 kWh. The increase this month is mainly a result of the upward movement in generation charge.
The weakening of the peso may also push inflation upward. The local currency hit a 10-year, intraday low at P50:$1 this week, its weakest since trading at 50.12 to a dollar on Nov. 11, 2006.
BSP forecasts for 2017, 2018
The BSP sees the 2016 average inflation at 1.8 percent, before the rate rises to 3.3 percent in 2017, and moderates to 3 percent in 2018.
Going forward, the Monetary Board said inflation is likely to return gradually to a path consistent with the inflation targets for 2017 and 2018 “due to higher oil prices and strong domestic economic activity.”
It pointed out that the overall balance of risks surrounding the inflation outlook remains tilted to the upside largely on pending petitions for adjustments in electricity rates, as well as the initial impact of the government’s broad fiscal reform program.
Increased uncertainty in the global economic prospects continues to be a key downside risk, it also said.
“Looking ahead, the BSP will continue to monitor evolving price trends and output conditions to ensure price stability conducive to a balanced and sustainable economic growth,” Tetangco added.