FOR inflation to remain favorable this year, sufficient food production through investment in infrastructure is crucial, according to the Department of Finance.
“Food production is crucial to maintaining this favorable macroeconomic scenario. Support to production through infrastructure development, credit availability and insurance coverage is necessary to sustain this,” DOF Undersecretary and Chief Economist Gil Beltran said in an economic bulletin released over the weekend.
That is why the government needs to ensure that credit and insurance coverage are available to stakeholders in the agriculture sector, the Finance official noted.
The Philippine Statistics Authority (PSA) earlier reported that inflation in December grew at its fastest pace in two years owing to higher food and transportation costs.
At 2.6 percent in December inflation was up from 1.5 percent a year earlier, and 2.5 percent in November that brought the full-year 2016 rate to 1.8 percent. But the full-year inflation was below the Bangko Sentral ng Pilipinas (BSP) target of 2 percent to 4 percent.
“For two consecutive years, the average inflation rate has fallen below 2.0 percent, largely on the back of lower fuel and energy prices,” Beltran said, adding that stable rice prices muted inflationary pressures.
In the past two years, food contributed 1.1-percentage point to the inflation rate while the share of non-food items more than doubled from 0.2 to 0.5-percentage point, he added.
Inflation would continue to pick up at a manageable pace in the coming months in tandem with the normalization of oil prices in the world market.
“In the foreseeable near-term, the general price increase may be above 2.0 percent as indicated by above 2.0 percent core inflation, an indicator of inflation outlook,” Beltran noted.
Aided by the newly implemented interest rate corridor system that make its operations more efficient, the BSP has “significant credibility” in managing price expectations, he said.
“This and the government’s prudent fiscal management will continue to help maintain macroeconomic stability in the country, which will in turn foster an environment conducive to generating investments,” he said.
Private analysts now see inflation rate averaging at a higher rate this year and prompt the BSP to tweak its monetary policy tighter.
Strong domestic demand is likely to drive inflation higher to an average 3.1 percent in 2017, said Eugenia Victorino, economist at ANZ Research.
Joey Cuyegkeng, senior economist at ING Bank Manila, sees inflation settling mid-point at the 2 percent to 4 percent target in the next six to nine months.
Investment bank First Metro Investments Corp. expects a moderate pace between 2.8 percent and 3.2 percent, its position based on the rebound in oil prices, strong domestic demand and a weaker peso.