The central bank said it expects Philippine headline inflation to continue rising until the third quarter of 2017 and still lead the full-year average rate into the government’s 2 percent to 4 percent target range.
Inflation in March has been estimated at between 3 percent and 3.8 percent, up from 1.1 percent a year earlier.
“A closer scrutiny of the monthly inflation path will show that inflation imprints will be rising until sometime [in the]third quarter of 2017,” Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. told participants of the Management Association of the Philippines (MAP) Economic Briefing 2017 held in Makati City on Tuesday.
Inflation has been on an upward track this year, climbing to 2.7 percent in January and 3.3 percent in February, from 2.6 percent in December 2016, and marking its fastest pace in over two years. That was since the rate hit 3.7 percent in November 2014.
With this trend, the monthly inflation rates are expected to be very close to the upper band of the target range, Tetangco said.
The forecast path suggests that monthly inflation will slow thereafter, resulting in a full-year average staying within target over the policy horizon, or the next two years, the BSP governor said.
“Going forward, we see average inflation being within the target range of 2 percent to 4 percent for 2017 and 2018,” he said.
The BSP sees 2017 inflation averaging 3.4 percent before the rate eases to 3 percent in 2018.
At its meeting last week, the policy-setting Monetary Board said the balance of risks surrounding the inflation outlook continues to lean toward the upside, given the transitory impact of the proposed tax reform program, as well as possible adjustments in transportation fares and electricity rates.
The Board also cited the beneficial impact on inflation of the removal in July of the quantitative restrictions on rice imports.
The lingering uncertainty over prospects of the global economy, due in part to possible shifts in macroeconomic policies in advanced economies, continues to pose a key downside risk to the inflation outlook, it added.
Sharing the central bank’s view is a market economist from Land Bank of the Philippines, who sees domestic inflation in 2017 settling comfortably within the BSP’s target range given the projected depreciation of the peso and bets of an extension of the Organization of the Petroleum Exporting Countries (OPEC) production cut agreement beyond June this year.
“Consistent with the BSP guidance, inflation might rise as a trend in the first half of the year, especially since the base in the first semester of 2016 was relatively small,” Land Bank’s Guian Angelo Dumalagan said.
The likely occurrence of another El Niño this year might also push prices higher in the months prior to the rainy season, he said.
Beyond July or August, however, Dumalagan sees a possible moderation in the rise in consumer prices in alignment with the relative increase in the price base for 2016.
“The likely culmination of the OPEC’s output cut agreement toward the yearend might also result in slower price increases by affecting the costs of fuel and other oil-based products,” he added.