Philippine headline inflation in January accelerated to its fastest pace in more than two years, hitting 2.7 percent on the back of higher prices of non-food items, government data showed on Tuesday.
The new rate was the fastest since November 2014, when inflation registered 3.7 percent.
The increase in January price growth momentum affirmed the official forecast and a consensus view by analysts for 2017 that inflation will be higher this year than in 2016 (See related story ‘2017 inflation to surpass 2016’ on B1).
However, it triggered a split between analysts who believe the central bank will tighten its monetary policy and those who see it keeping its key interest rates steady at least this year.
The Bangko Sentral ng Pilipinas (BSP) expects inflation to average 3.3 percent in 2017 before the rate moderates to 3 percent in 2018.
Performance vs previous, forecasts
The consumer price index (CPI) showed a big jump from 1.3 percent a year earlier, although it rose only marginally from 2.6 percent in December 2016.
The rise in CPI settled within the 2.3 percent to 3.2 percent range forecast earlier by the Bangko Sentral ng Pilipinas (BSP) for the month.
However, it fell below the 2.8 percent to 2.9 percent range estimated for the month by private analysts polled earlier by The Manila Times.
Core inflation—which excludes food and energy prices – stayed at 2.5 percent, the same rate posted in the preceding month, but picked up from 1.8 percent a year earlier.
The National Economic and Development Authority (NEDA) traced the acceleration in January to non-food items, saying higher price adjustments in the heavily weighted housing, water, electricity, gas and other fuels pushed up the overall inflation rate. The increase was measured at 1.8 percent in January this year from 1.3 percent in December last year.
“The faster spike in transport and gas and other fuels costs can be traced to the increase in petroleum prices as the oil market rebalanced after the recent decision of the Organization of the Petroleum Exporting Countries to cut oil production by 1.2 million barrels per day,” Socioeconomic Planning Secretary Ernesto Pernia said in a statement following the release of the January inflation rate.
Despite this slight pickup in inflation, lower food prices were recorded during the month in review.
The food subgroup prices decelerated to 3.4 percent from the previous month’s 3.6 percent. This is due to slower price adjustments in fruits, vegetables, meat, corn, sugar, jam, honey, chocolate and confectionery, the NEDA said.
Higher price adjustments were recorded for fish, and oils and fats. There was also a slight uptick in the price of rice, which rose 1.8 percent in January 2017 from 1.6 the previous month.
“The damage by typhoons Karen and Lando may have contributed to the lower supply of rice, which slightly raised rice prices. In some areas like Cagayan Valley and Central Visayas, the planting calendar was delayed, which resulted in lower production in the fourth quarter,” Pernia said.
Overall, inflation drivers are higher oil prices, pending petitions for higher electricity rates and transport fares, besides the country’s strong domestic demand, the NEDA said.
It added that other price pressures are the shift to a unitary excise rate for cigarettes effective January 2017 as mandated by the Sin Tax Reform Law, and the Malampaya 20-day maintenance shutdown that started last month, which may lead to an increase in the generation charge starting March.
Compared with its Association of Southeast Asian Nations neighbors, the Philippines’ inflation in January was lower than Indonesia’s 3.5 percent but higher than Thailand’s 1.6 percent, the official data showed.
Consistent with BSP expectation
BSP Governor Amando Tetangco Jr. said inflation in January was consistent with the central bank’s expectation that the rate would follow a slow path to within its 2 percent to 4 percent target range.
“We are closely monitoring developments, including the emerging form and magnitude of the tax reform program, as well as those from the external front, and their impact on our own price and growth dynamics. We will consider these at our policy meeting this week,” he told reporters in a text message, referring to the Monetary Board’s policy meeting on Thursday.
The BSP expects inflation to average 3.3 percent in 2017 before it slows to 3 percent in 2018.
BSP Deputy Governor Diwa Guinigundo said the central bank already factored in higher oil prices and the impact of the government’s tax reform on its inflation forecast for this year and the next.
“The $53 to $54 per barrel prices of oil were already considered in our forecast… Among the upside is the tax reform,” he told reporters late Monday.
At the same time, Guinigundo said the BSP had already expected the additional P1 in jeepney fare, but noted that the adjustment may have minimal impact on inflation.
The Land Transportation Franchising and Regulatory Board (LTFRB) earlier decided to hike the minimum jeepney fare by P1 to P8 effective Wednesday. The fare hike covers Metro Manila, Central Luzon and Southern Luzon.
For its part, the NEDA said despite upside risks and pressures, the government expects inflation to be stable and remain consistent with the official target range.
“To stabilize and manage food inflation, sustainable financing and access to insurance facilities for agriculture sector are needed. This will ensure availability of loans to farmers to keep their farm output stable, especially in times of climate-related shocks,” Pernia said.