INFLATION moderated to 1.3 percent in January after picking up in the last two months of 2015, the government reported on Friday, on the back of lower food and non-food prices.
Last month’s result was slower than the 1.5 percent recorded in December and November’s 1.1 percent. It was also below the 2.4 percent seen in January last year.
It fell within the Bangko Sentral ng Pilipinas’ 0.8 percent to 1.6 percent forecast, also hit the mid-point of the 1.2 percent to 1.4 percent range seen in a Manila Times poll of analysts, but was slightly higher than the Department of Finance’s 1.2 percent estimate.
Inflation, an analyst said, remained in check and should remain anchored within the central bank’s 2 percent to 4 percent target band for 2016 to 2017.
Excluding food and energy prices, core inflation eased to 1.8 percent from 2.1 percent in December but was still lower than the 2.2 percent recorded a year earlier.
The National Economic and Development Authority (NEDA) said slower price adjustments for both food and non-food items pulled inflation down. In particular, inflation for the food sub-group slowed as prices of fish, fruits, vegetables, milk, cheese, and eggs became stable.
“Good weather conditions at the onset of 2016 allowed prices of these food items to stabilize,” Acting Socioeconomic Planning Secretary Emmanuel Esguerra said in a statement.
“This was an improvement from the previous month when Typhoon Nona pushed up prices due to hampered production, transport, and delivery of agricultural products in the affected areas,” he added.
Domestic prices of gasoline, liquefied petroleum gas, diesel and gasoline continued to go down, the NEDA also said.
“This was still due to persistent global oversupply and record stockpile of crude oil which weakened prices of Dubai oil, Brent, and West Texas Intermediate,” said Esguerra, who is the NEDA director general.
Price drops for electricity also continued on account of lower generation costs, although at a slower pace than in December 2015.
An economist from United Kingdom-based investment bank Barclays said near-term upside risks to inflation were centered on the El Niño weather phenomenon and its potential impact on agricultural prices.
“Downside risks are likely to emerge from further decline in oil prices, leading to lower retail pump prices and electricity tariffs,” added Barclays economist Rahul Bajoria.
He said the central bank was likely to stand pat on policy rates, emphasizing that growth and inflation risks will come largely from poor weather and the uncertain global backdrop.
“We think the central bank is likely to hike when growth has recovered sufficiently and inflation is high enough to justify an increase in interest rates,” Bajoria said.
“Although there is external uncertainty in the form of the Fed rate hike cycle, we think the Philippines’ strong external position and low level of short-term debt provide BSP with enough policy space to maintain an accommodative stance even if US rates head higher.”
Central bank Governor Amando Tetangco Jr. said monetary authorities continued to expect inflation to slowly rise to within the target range for 2016 and 2017.
In a text message to reporters, Tetangco said upside risks would continue to emanate from a stronger-than-expected El Nino and potential adjustments in electricity rates given pending petitions.
“We will continue to monitor other developments, including hints of even slower global growth and more volatility in financial and commodity markets, to see if the balance of risks is tilting such that there is need for adjustment in policy stance,” he said.
The risk of higher food prices will remain for the first few months of 2016, the NEDA said, noting that while the El Niño will gradually weaken beginning next month, farm output could be constrained by the onset of the summer season.
“Guided by the Roadmap for Addressing the Impact of El Niño or RAIN, accurate determination of food import requirements to avoid supply disruptions is important to keep inflation stable in the coming months,” Esguerra said.
From a global perspective, he pointed out that given expectations of prolonged low oil prices, the government needs to prepare for the negative impact on oil-producing countries.
“Such developments could adversely affect overseas Filipino workers as the governments of the said economies implement austerity measures, cut back on subsidies, postpone infrastructure outlays, and raise taxes,” he said.
The government should actively extend assistance to displaced workers, including re-training, livelihood, re-integration or placement services, Esguerra said.