Inflation seen below 2% this year
The Bangko Sentral ng Pilipinas downplayed the impact of the recent typhoons on food prices—particularly rice—and maintained that inflation this year may settle below 2 percent, the low-end of the government’s target range, BSP Deputy Governor Diwa Guinigundo said.
The tame inflation estimate will give monetary authorities more flexibility to maintain the central bank’s much-watched overnight rates, the BSP said in an inflation report released Friday, a view echoed by an economist.
“We have sufficient buffer stock maintained by the National Food Authority and I am sure even among commercial entities,” Guinigundo told reporters.
“Hopefully, there would be no significant impact on inflation considering that rice accounts for 9 percent of the consumer basket,” he added.
Inflation averaged 1.6 percent in the first nine months of 2016, well bellow the official 2 to 4 percent target for the whole year.
Consumer prices may rise at a faster clip in the last three months of 2016, driven by food and drinks, which account for about 39 percent of the CPI basket, Standard Chartered Bank economist Chidu Narayanan said.
Narayanan estimates inflation settling at an average of 2.3 percent in the fourth quarter, faster than the 2 percent recorded in the third quarter.
“We expect upward pressure on headline inflation from higher food inflation to persist in the medium term,” Narayanan said.
But this is not a cause of concern, Narayanan said, since he expects inflation at an average of 1.8 percent for the whole year, less than the government’s target.
Narayanan said given the anemic inflation picture, local policy makers will probably maintain a neutral policy stance for the rest of the year.
Steady rice supply
The NFA has imported 250,000 metric tons of rice so far this year, and an additional 250,000 MT is being planned. The country’s rice stock stood at 578,000 MT, equivalent to 18 days of supply.
Also, Guinigundo said October is the start of main harvest season, so farmers can still recover most of the damaged crops during typhoons in the next two months.
Government’s efforts to improve the agriculture sector would also help in mitigating the adverse effects of typhoons to crops, Guinigundo said.
“I hope those initiatives in the past which were part of mitigation measures that the Department of Agriculture and the NFA have done including National Irrigation Administration’s focus on irrigation as well as water impounding facilities would have materialized at this time,” Guinigundo said.
While inflation is seen below target this year, the BSP expects it to settle at mid point of the official 2-4 percent estimates in 2017 and 2018.
Narayanan pegged inflation at 2.9 percent next year.
Possible increases in power rates, and government’s plan to raise excise taxes on fuel products that could trigger a rise in transport costs may hasten inflation in the next two years, the BSP said.