Seen nearing high end of target range in H2
Headline inflation gained further speed in the first quarter of 2017 to 3.2 percent from 2.5 percent in the fourth quarter last year, central bank data shows, indicating sustained acceleration in price growth for the sixth quarter in a row.
Releasing the first-quarter data on Friday, the Bangko Sentral ng Pilipinas (BSP) warned of further upward pressures in the months ahead from pending adjustments to electricity rates, transportation fares and fiscal reform measures.
The BSP, however, explained in its First Quarter 2017 Inflation Report that although inflation expectations have risen over recent months, they remain firmly within the full-year 2 percent to 4 percent target range of the government.
“Inflation is projected to rise close to the high-end of the target range in the second half of 2017, driven by the weaker exchange rate and the continued strength in domestic economic activity, before reverting back to the midpoint of the target range in 2018,” Dennis Lapid, deputy director at the BSP’s Department of Economic Research told reporters in a briefing on Friday.
The first-quarter 2017 headline inflation marks the sixth consecutive quarter of an accelerated rise in consumer prices since the fourth quarter of 2015. The upward climb was broken only back in the third quarter of that year, when inflation slowed sharply to 0.6 percent from 1.7 percent in the second quarter.
The central bank said risks to future inflation remain tilted toward the upside.
“The expected impact of the government’s broad fiscal reform program, along with possible adjustments in electricity rates and transportation fares are the main upside risks to inflation,” Lapid said.
Meanwhile, lingering uncertainty over the prospects of the global economy, due in part to possible shifts in macroeconomic policies in advanced economies, is seen posing the key downside risk to the inflation outlook.
With that statement, the central bank was referring to the heightened economic uncertainty in the US due to possible expansionary fiscal policies leading to higher and faster-than-expected Federal funds rate hikes.
“At the same time, US President Donald Trump’s proposed restrictive trade policies, such as increases in tariffs to China, Mexico and other countries, the repeal of the North American Free Trade Agreement, and withdrawal from the Trans-Pacific Partnership agreement, could lead to slower global trade activity and thereby lead to downward price pressures,” said the BSP in its First Quarter 2017 Inflation Report.
Tight food supply
“The rise in average headline inflation during the [first]quarter could be attributed to some tightness in domestic food supply and upward adjustments in petroleum prices and electricity rates,” Lapid said.
Food inflation was higher at 4 percent in the first quarter of this year from 3.6 percent in the fourth quarter of 2016 on increased prices of key food items such as meat, fish, oils and fats, as well as milk, cheese and eggs.
“Similarly, rice prices also increased due partly to the end of the main harvest season,” Lapid said.
Non-food inflation was faster at 2.4 percent in the first quarter from 1.5 percent in the previous quarter owing to elevated prices of international crude oil, which pushed up transport services, gas and other fuels’ prices.
“Inflation for transport services rose during the quarter due to approved fare hikes in February 2017, influenced by upward adjustments in the domestic prices of petroleum products during the quarter,” Lapid said.
The Land Transportation Franchising and Regulatory Board’s approval of the fare petitions of taxi and public utility jeepney (PUJ) transport groups effectively raised the minimum fare for PUJs by P1 in Metro Manila, Region III and Region IV. Also, the taxi flagdown rate was raised by P10 to P40.
At the same time, electricity rates rose as a result of the maintenance shutdown of the Malampaya natural gas facility during the period.