March inflation paces up to 3.1%-3.6%


A weakening peso likely pushed oil and food prices higher in March, likewise creating upward pressure on headline inflation that month, but analysts are split in their outlook for a rate hike by the central bank this year.

Seven analysts polled by The Manila Times estimated that inflation last month settled within the 3.1 percent to 3.6 percent range, averaging 3.4 percent. That is higher than the year-earlier and February levels.

In February, inflation accelerated to 3.3 percent from 2.7 percent in January. In March 2016, inflation ran at only 1.1 percent.

The estimates by analysts fall within the 3 percent to 3.8 percent range considered for March by the Bangko Sentral ng Pilipinas (BSP).

The Philippine Statistics Authority is expected to release the official March 2017 inflation report on Wednesday, April 5.

Deutsche Bank, IHS Markit see rate hike
German lender Deutsche Bank, which gave the highest inflation estimate of 3.6 percent for the month, sees a possible move by the Philippine central bank to raise key interest rates twice this year.

For March, Deutsche Bank’s estimate was based on faster increases in electricity rates and food prices.

Diana del Rosario, economist at Deutsche Bank, noted that initially, they did not see the BSP tweaking policy rates this year based on their inflation projections.

However, she said, any upside surprise to their estimate may change their outlook for the BSP policy settings.

“Given that underlying price pressures (as measured by core inflation) have been exhibiting some pick-up in recent months, upside surprises to our inflation outlook would easily prompt the BSP to hike rates by 25 bps [basis points]each in June and September,” she said.

For IHS Markit, University of Asia and the Pacific (UA&P), and Standard Chartered Bank analysts, inflation last month must have hit 3.5 percent.

Rajiv Biswas, Asia-Pacific chief economist at IHS Markit, considered the increases in power tariffs and the transmission effects of the peso depreciation and rising input costs on retail consumer prices on one hand, and on the other, the easing of world oil prices, resulting in some decline in retail petrol prices, which mitigates upward inflationary pressures.

Biswas also noted that although headline inflation moved sharply higher during the first quarter of 2017, it remains within the BSP’s target range of between 2 percent and 4 percent.

“With headline CPI [consumer price index]inflation expected to edge higher in the coming months and domestic economic growth momentum expected to remain strong during 2017, the BSP’s monetary policy stance is expected to have a tightening bias with one rate hike expected later in 2017,” he said.

The United States Federal Reserve had hinted at raising its key interest rates two more times for 2017, but the BSP will base its own monetary policy decision on domestic inflation and economic growth momentum in the Philippines, rather than simply following the US Fed policy moves, Biswas added.

Still within target
UA&P economist Victor Abola, however, believes the “BSP won’t raise policy rates until after the Fed does its second hike for the year.”

Chidu Narayanan of Standard Chartered Bank also sees inflation in March at 3.5 percent, but did not provide an explanation for his estimate.

At 3.4 percent, inflation estimates by ANZ Research and Land Bank of the Philippines were based on strong domestic demand, and higher electricity prices.

“While transport prices are still contributing positively to the annual gains in CPI, their effect is fading. Gasoline and diesel prices have been contracting on a monthly basis. Meanwhile electricity prices of the biggest distributor rose for the second straight month,” ANZ Research economist Eugenia Victorino explained.

Guian Angelo Dumalagan, market economist at LandBank said the continued depreciation of the peso may have offset the slower annual rise in oil prices.

“The tempered inflation forecasts of the BSP suggest a minimal need for immediate monetary tightening, but they do not preclude the possibility of another rate hike this year,” he said.

Going forward, the BSP could still hike rates by at least once in 2017 in response to a potential leap in US interest rates.

Giving the lowest estimate of 3.1 percent is Gundy Cahyadi of DBS, providing no explanation for his forecast.

The BSP had said pressures from higher electricity rates and lower fuel and food prices supported its 3 percent to 3.8 percent inflation forecast for March.

“The higher power rates in Meralco-serviced areas due to the Malampaya maintenance shutdown along with the weaker peso could be partially offset by the decline in fuel and food prices this month,” BSP Governor Amando Tetangco Jr. said at the time.

Distribution utility Meralco had warned the March electric bill for a typical household would increase by P0.66 per kilowatt-hour (kWh), bringing the overall rate to P9.67 per kWh from P9 per kWh in February.

In other words, a typical household consuming 200 kWh a month may expect a P132 increase in the total bill.

Oil companies implemented three oil price rollbacks in March, ranging from 10 centavos to P1.10 per liter of diesel; 35 centavos to 80 centavos per liter of gasoline; and 20 centavos to P1.20 per liter of kerosene.

For full-year 2017, the BSP forecasts inflation to average 3.4 percent, or within the government’s 2 percent to 4 percent target.

The central bank has said it will remain watchful of economic and financial developments that could affect the inflation outlook, in line with its commitment to price stability that is conducive to a balanced and sustainable growth of the economy.


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