Philippine headline inflation accelerated to 2.5 percent in November, beating central bank and analyst forecasts and marking the highest rate in almost two years, official data showed on Tuesday.
The Philippine Statistics Authority (PSA) said inflation gained speed from 2.3 percent in October and 1.1 percent in November 2015. It was the highest rate since the 2.7 percent posted in December 2014.
“This was attributed to higher annual increments registered in the indices of alcoholic beverages and tobacco; housing, water, electricity, gas, and other fuels; and transport,” the PSA said.
Last month’s inflation rate beat the 1.6 to 2.4 percent range forecast by the Bangko Sentral ng Pilipinas and private bank analysts’ estimated range of 2 percent to 2.4 percent.
11-mth average still below target
The increase, however, kept the January-November inflation average still below the official target range for the year.
The average inflation rate in the 11-month period stood at 1.7 percent, or below the 2 percent to 4 percent range forecast by the government.
Excluding selected food and energy items, core inflation picked up to 2.4 percent in November from 2.3 percent in October and 1.8 percent a year earlier. Core inflation for the 11-month period averaged 1.8 percent.
Petrol drives rate up
“The increase in inflation can be attributed to the increase in domestic prices of petrol products, which comprise the bulk of the non-food commodity basket usually purchased by the average Filipino household,” Socioeconomic Planning Secretary Ernesto Pernia said in a separate statement.
The National Economic and Development Authority (NEDA) noted that non-food inflation increased due to the uptick in prices of all major non-food items, such as housing, water, electricity, gas and other fuels (1.3 percent from 0.9 percent), and transport (0.5 percent from 0.2 percent).
On the other hand, food inflation remained unchanged in November 2016 at 3.5 percent, with rice prices breaking its five-month long upward trend, while corn prices sustained its downward trend which began in August, it said.
“The decrease in rice prices signals the recovery of the rice sector from the devastation of typhoons Karen and Lawin. We must foster technological advances in agriculture to [reduce]the susceptibility of our crops to natural calamities,” Pernia, who is also the NEDA chief, said.
Despite the rise in November, the average inflation rate for full-year 2016 is seen by analysts likely settling below the 2 percent to 4 percent target range of the BSP, before it firms up again in 2017 and 2018.
Timing of rate hike
The analysts expect the central bank will adjust its monetary policy setting, but disagreed on the timing of such move.
“The average inflation will likely fall below the central bank’s 2 percent to 4 percent target range for the second straight year in 2016,” said ANZ Research economist Eugenia Fabon Victorino.
In ANZ outlook for 2017, which considers strong growth in household spending and robust private investment, the bank research expects inflation may average 3.1 percent year-on-year.
“If the government is successful in raising excise taxes on oil by mid-2017, the central bank estimates a 0.6-percentage point additional increase in average inflation over a 12-month period,” Victorino said.
“We expect the BSP to go back to the tightening table by the third quarter 2017. This should give the central bank sufficient time to migrate structural excess liquidity to its term deposit facility,” she added.
Meanwhile, Standard Chartered Bank economist Chidu Narayanan said inflation is expected to average 1.7 percent in 2016, which is the average level it has reached so far in the year-to-date, but higher than 1.4 percent posted in 2015.
“We do expect inflation to edge up further in the near term, but remaining within the central bank’s 2 percent to 4 percent target range in 2017, and to remain unconcerning,” he added.
Narayanan expects the BSP to maintain a neutral monetary policy stance through 2017 and maintain banking-system liquidity through the implementation of a ceiling (standing overnight lending facility, set at 3.5 percent) and floor (standing overnight deposit facility, set at 2.5 percent) of the interest rate corridor, and the term deposit auction facility
“However, we expect the BSP to cut the reserve requirement ratio to 15 percent in 2017, from 20 percent, in order to provide more liquidity,” he added.
BSP Governor Amando Tetangco Jr. said that while the year-to-date inflation is still slightly below the lower end of the national government target range, the trend is consistent with the central bank’s expectation for 2017 to 2018 that full-year inflation will be within target.
“We continue to watch petitions for transport fare adjustments and global developments that may affect domestic inflation dynamics over the policy horizon,” he said in a text message to reporters.
Impact of rice import quota removal
Going forward, the NEDA said the lifting of the Philippines’ Quantitative Restrictions for rice imports, a local support program for farmers, by July 2017 is expected to reduce the prices of well-milled rice by P7 and farm gate price by P5.
“We must help our rice farmers prepare for this and help them transition to higher value crops as we ensure food security and make basic prices more affordable to the poor,” Pernia said.
“Overall, we expect the full-year inflation for 2016 to be well within the government’s inflation target band of 2 percent to 4 percent. The overall balance of risks is tilted on the upside, with supply-side factors as the main contributor to price adjustments,” he said.
International and domestic risks are tilted upward from a possible rally in oil prices, depreciation of the peso against the US dollar, and pending petitions for electricity rate increases, he explained.