Jan inflation seen at 2.8%-2.9% from 2.6% in Dec – analysts


    HEADLINE inflation likely accelerated in January on higher food and oil prices, further depreciation of the peso and sin tax adjustments, analysts polled by The Manila Times, said.

    Five analysts said inflation in the first month of this year could have settled within the 2.8 percent to 2.9 percent range.

    The average estimate by analysts of 2.84 percent would be closer to the upper end of the 2.3 percent to 3.2 percent band estimated earlier by the Bangko Sentral ng Pilipinas (BSP).

    Inflation accelerated to 2.6 percent in December from 2.5 percent in November. In January 2015, inflation settled at 1.3 percent.

    The official January inflation report is due for release on Tuesday by the Philippine Statistics Authority.

    Providing the highest estimates were Land Bank of the Philippines and Deutsche Bank analysts, saying January inflation may come in at 2.9 percent.

    Guian Angelo Dumalagan, market economist at LandBank, said the rise in consumer prices last month may have been driven by higher oil prices and the peso’s depreciation.

    “Food prices likely accelerated as well because of the lingering effects of the typhoon, which hit the country last December,” he added.

    This year, he said, inflation may move toward the midpoint of the BSP’s inflation target of 2 percent to 4 percent amid expectations of a continued increase in oil prices and a weaker peso, adding that consumer prices may rise even further if another El Niño hits the country this year.

    Dumalagan added that the BSP is expected to keep its policy settings steady at its meeting next week due to benign inflation and global uncertainty, especia lly in the US.

    “The lack of clarity about President Trump’s fiscal policy distorts expectations of future rate hikes by the Federal Reserve, indirectly casting a gray shadow over the policy settings of other central banks, including the BSP. Brexit concerns also have a similar influence on monetary policy, although their impact currently is slightly less than the fiscal issues in the US,” he pointed out.

    In the longer term, the BSP may keep interest rates steady at least until June 2017, although Dumalagan said it may also adjust the reserve requirement ratio – which currently stands at 20 percent – within the first semester as a consequence of its transition toward the new interest rate corridor system.

    Diana del Rosario, Deutsche Bank economist, believes inflation advanced in January on higher oil prices and the adjustments on excise tax rates for alcoholic beverages and tobacco products.

    “While inflation has been rising, it is likely to settle just a little above the midpoint of the BSP’s 2 percent to 4 percent target in 2017. And so, we do not think the BSP should react by tweaking rates when they meet this month,” she said.

    Meanwhile, giving a 2.8 percent estimate were analysts from IHS Markit, London-based Research consultancy firm Capital Economics and Australia’s ANZ Research.

    Rajiv Biswas, Asia-Pacific chief economist at IHS Markit, said his estimate reflects higher world oil prices after the November decision by the Organization of Petroleum Exporting Countries ministers to reduce oil production, which has pushed up retail prices for petrol and diesel.

    “Increases in excise taxes for alcohol and tobacco will also contribute to higher CPI [consumer price index]inflation, although this will be mitigated by some reductions in electricity prices,” he added.

    Despite the recent upturn in headline CPI inflation since last August, the year-on-year increase in CPI inflation is expected to remain well within the BSP’s inflation target range of 2 percent to 4 percent, he said, noting that this should allow the BSP to keep its policy rates on hold at the February 9 monetary board meeting.

    “However, the upturn in world oil prices, recent rises in CPI inflation and continued strong GDP [gross domestic product]growth are expected to increase BSP concerns about upwards risks to inflation, with a policy rate hike expected later in 2017,” Biswas said.

    Capital Economics expects the central bank will almost certainly keep interest rates on hold at its upcoming meeting.

    “Although consumer price inflation has rebounded over the past year, at 2.6 percent year-on-year in December, it remains [near]the bottom of the BSP’s target range of 2 percent to 4 percent. And while inflation is likely to rise over the coming months as oil price inflation continues to pick up, it should remain low for a while yet,” it said.

    The London-based research firm said the Philippine economy is continuing to grow at a decent pace, supported by strong investment, a booming business process outsourcing sector and high levels of business and consumer confidence.

    “In other words, there is little need to cut interest rates to support economic growth. Overall, we think interest rates in the Philippines are likely to remain at their current low levels until at least end- 2017,” it said.

    ANZ Research did not elaborate on the factors behind its 2.8 percent estimate.

    BSP Governor Amando Tetangco Jr., in explaining the central bank’s 2.3 percent to 3.2 percent projection for January, had said: “Downward price pressures include a slight decline in rice prices and lower power rates in Meralco [Manila Electric Co.]-serviced areas. However, higher domestic prices of gasoline, diesel and LPG [liquefied petroleum gas]as well as the excise tax adjustments for alcoholic beverages and tobacco products would likely exert upside pressures on inflation during the month.

    Meralco earlier announced there would be a price cut of P0.27 per kilowatt-hour to the electric bills of typical households this January, bringing the total rate to P8.09 per kWh.

    Cigarette tax, following the implementation of the Sin Tax Law, has risen to P30 per pack since January 1. The previous rates were P25 for brands selling for P11.50 and below and P29 for those selling above P11.50 per pack.

    For beer, lager beer, ale, porter and other fermented liquors, the levy increased to a uniform P23 per liter.


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