BSP Gov Tetangco sees no urgent need for policy shift
INFLATION in March picked up to 1.1 percent from 0.9 percent in February on higher prices of food and other commodities, an acceleration seen by the central bank as driving up the rate closer to the target range over its policy horizon.
Data released by the Philippine Statistics Authority (PSA) on Tuesday showed that the 1.1 percent headline inflation was a deceleration from the 2.4 percent recorded in March 2015, with housing and utility rates remaining low so far this year.
The March figure hit the 1.1 percent estimate by the Department of Finance, although nearer the high end of the 0.6 percent to 1.4 percent range projected by the Bangko Sentral ng Pilipinas (BSP) for the month.
Central Bank Governor Amando Tetangco Jr. said inflation will slowly move up into the target range, but for now prompts no immediate shift in policy stance.
“For 2016 we see inflation close to the low end of the government target range. We will continue to monitor developments. But right now we see no urgent need to change the stance of policy,” Tetangco said in a text message to reporters.
The headline inflation figure also stood within the forecast range of 1.0 percent to 1.3 percent by analysts polled by The Manila Times.
The PSA said growth in March headline inflation was due to higher annual increments noted in the indices of food and non-alcoholic beverages; alcoholic beverages and tobacco; recreation and culture; and restaurant and miscellaneous goods and services.
Excluding food and energy prices, core inflation remained at 1.5 percent, the same rate in February but lower than the 2.7 percent recorded in March 2015.
A “decline was, however, still recorded in the index of housing, water, electricity, gas, and other fuels at -1.5 percent,” it said.
In the year-to-date, inflation in the first quarter of 2016 averaged 1.1 percent, below the 2 percent to 4 percent target of the BSP for this year.
High food prices
The National Economic and Development Authority (NEDA) said in a statement inflation in food items stepped up slightly to 1.6 percent in March 2016 from 1.5 percent in the previous month, due to increases in the prices of meat, fish, milk, cheese and eggs.
On the other hand, rice prices remained lower than in the previous year at a rate of -1.7 percent in March from -2 percent in February and have been declining consistently since October 2015 despite the El Niño phenomenon, it said.
Likewise, prices of vegetables, while remaining elevated since November 2015, have trended down after peaking in January 2016, declining by 2.9 percent in March 2016 from the previous month, for a total decline of 7.8 percent since the beginning of the year, the agency added.
“We have been closely monitoring price movements and looking at factors that influence commodity prices, especially food consumed by the poor,” Socioeconomic Planning Secretary Emmanuel Esguerra said.
“Aware of El Niño, the government has put in place a program to mitigate the impact of the drought. We need to ensure adequate supply of food and provide assistance to affected farmers,” he added.
An increase in domestic oil prices was recorded, particularly for gasoline by 5.03 percent, liquefied petroleum gas by 0.58 percent, diesel by 8.6 percent and kerosene by 7.06 percent, the NEDA said.
These increases were the result of cutbacks in production and exploration of international energy firms due to the continued soft oil prices, it explained.
The “outlook for oil prices in the medium term remains modest, given a backdrop of strong world crude oil supply growth and weak global demand. Overall, the continuing environment of low international oil prices remains a positive development for the country, considering that we are a net importer of oil,” said Esguerra, who is also NEDA director general.
Energy slump and interest rates
An economist from the Bank of the Philippine Islands (BPI) sees the March rate tied to the protracted energy slump.
BPI associate economist Nicholas Antonio Mapa said the slack in energy prices continues to affect the rest of the consumer price index basket, most notably in utilities and liquefied petroleum prices.
With this, the BSP is expected to stand pat at its next Monetary Board meeting as inflation remains subdued while domestic activity continues to be upbeat.
“The next move by the BSP will be an ‘operational’ one as it prepares for the roll-out of the IRC [interest rate corridor]in June. [The] BSP is expected to tighten its current corridor by lowering the RP [repurchase]and RRP [reverse repurchase]and possibly hiking the SDA [special deposit account]depending on the pace of the Fed rate hike,” Mapa said.
For its part, NEDA said that in the first three months of 2016, inflation remained relatively low and stable in line with expectations over the policy horizon, which is likely to support consumption growth.
Nonetheless, it said the government needs to remain vigilant.
“Although El Nino has entered its weakening stage, the risk of higher food prices remains given the onset of the summer season,” Esguerra said. “Thus, we must also monitor our rice supply and importation to avoid supply disruptions which could result in volatilities in the price of rice.”
Roadmap for El Nino
Esguerra said the Roadmap for Addressing the Impact of El Niño (RAIN) needs to be accelerated and sustained, particularly in areas declared under a state of calamity.
The RAIN aims to ensure food security by increasing the supply of food, keeping food prices stable, and implementing measures to protect farmers’ incomes.
While implementing RAIN, the government would need to prepare for La Niña, which, according to international weather forecast, is likely to bring in a higher-than-normal volume of rainfall on the Philippines in the latter half of the year, Esguerra added.