INFLATION accelerated to 1.5 percent in December, bringing the full-year 2015 average to 1.4 percent or below the government’s target for the year.
The result was the fastest acceleration in seven months, rising from November’s 1.1 percent but still below the 2.7 percent recorded in December last year.
It fell within the Bangko Sentral ng Pilipinas’ (BSP) forecast of 1.1 percent to 1.9 percent—the same range seen in a Manila Times poll of private analysts. The result also matched the Department of Finance’s estimate for the month.
Even with the pick-up, an analyst said the central bank appeared comfortable with its policy stance.
Excluding food and energy prices, core inflation picked up to 2.1 percent from 1.8 percent in November but was still lower than the 2.3 percent posted a year earlier.
The rise in consumer prices averaged 1.4 percent in 2015, below the central bank’s 2-percent to 4-percent target for the year and slower than the 4.1 percent in 2014. It was also the lowest annual average in 29 years or since the 1 percent in 1986 based on central bank data.
Core inflation, meanwhile, averaged 2.1 percent in 2015.
‘Favorable supply-side factors’
The National Economic and Development Authority (NEDA) said the generally low inflation environment in 2015 was expected.
“It was largely due to favorable supply-side factors such as relatively lower domestic retail prices of corn, oil, and rice, lower international oil prices, and the contraction in the prices of housing and other utilities,” Socioeconomic Planning Secretary Arsenio Balisacan said in a statement.
The Philippine Statistics Authority (PSA) said the inflation drivers for December were higher annual rates registered in the indices of alcoholic beverages and tobacco, health, transport, and recreation and culture.
The NEDA said price increases during the month were largely due to the upbeat demand during the holiday season.
“Inclement weather conditions, primarily Typhoon Nona, also adversely affected agricultural areas, hampering the production, delivery, and transport of products, which in turn pushed up prices” said Balisacan, the NEDA director general.
It said inflation for the food subgroup accelerated on the back of higher prices of corn, fish, milk, cheese and eggs, which offset lower prices in heavily-weighted items such as rice, vegetables and non-alcoholic beverages.
Meanwhile, the increase in non-food inflation was traced to slower price declines in housing, water, electricity, gas and other fuels, accompanied by faster price adjustments in transport, health, and recreation and culture.
Prices of electricity, gas, and other fuels also went up with higher generation charges given low output from cost-effective hydropower plants. Transmission charges were also higher as ancillary services increased charges in December 2015.
The NEDA also noted that a global oversupply and record stockpiles of crude oil were instrumental in an unabated price downtrend that was reflected in the domestic market.
Policy rates to stay unchanged
“Even with the pickup in inflation, we think BSP is likely to stand pat on policy rates, emphasizing that growth and inflation risks stem largely from poor weather and the uncertain global backdrop,” said Rahul Bajoria, economist at United Kingdom-based investment bank Barclays.
Despite 2015 inflation falling below target, central bank Governor Amando Tetangco Jr. said their forecasts for this year and the next show an inflation path consistent with the target of 2 percent to 4 percent.
The central bank expects inflation to average to 2.4 percent this year before inching up to 3.2 percent in 2017.
In a text message to reporters, Tetangco said the risks remained the same, including uneven global growth prospects and low oil prices on the downside and a harsher El Niño on the upside.
“These still show no strong need to change the BSP’s stance of policy. Nevertheless we will monitor developments and adjust as needed,” the central bank chief said.
Sharing the same view were analysts from Barclays and Standard Chartered Bank, who said 2016 inflation would fall within the government target range.
Barclays’ Bajoria said the investment bank was maintaining its 2016 inflation forecast at 2.4 percent, while StanChart regional economist for Asia Jeff Ng expects the rate to hit 2.2 percent this year.
“We continue to see the near-term upside risks to inflation as centered on El Niño and its potential impact on agricultural prices. Downside risks to our forecast are likely to emerge from the recent decline in oil prices,” Bajoria said.
Ng said modest inflation should continue to hold in 2016 as high food prices were unlikely to persist given that the rise was typhoon-related.
“Rice inflation, the main driver of inflation in previous years, remains benign. At the same time, energy inflation is likely to remain low,” he said.
The NEDA said the effects of El Niño could lead to higher inflation, particularly for food and power, in the first months of 2016.
Balisacan said the weather phenomenon was expected to peak from November 2015 to January 2016 and gradually weaken starting February 2016.
“Guided by the Roadmap for Addressing the Impact of El Niño or RAIN, accurate determination of food import requirements to avoid scarcity in supply is important to keep inflation stable in the coming months,” Balisacan said.
“This also has significant impact on poverty reduction as the poor spend more than half of their budget on food,” he added.