Nov inflation likely lower at 3.2% – poll


Inflation likely eased in November on account of stable food prices and stronger peso, analysts polled by The Manila Times said.

Forecasts for the month ranged from 3.1 percent to 3.5 percent with a 3.2 percent average, lower than the three-year high of 3.5 percent recorded in October.

The Philippine Statistics Authority is scheduled to release November inflation data on Tuesday, December 5.

All seven analysts polled expect inflation to have surpassed the year-ago rate of 2.5 percent given consistently higher consumer price growth since the start of 2017.

With regards to their outlooks to monetary policy settings, all agreed that key interest rates were likely to remain unchanged this year.

The Bangko Sentral ng Pilipinas (BSP), which last month maintained its inflation forecasts for this year, has said that November inflation could fall within a 2.9 to 3.6 percent range.

Monetary authorities have noted that their estimates—2017 is expected to see inflation averaging 3.2 percent—remain within the 2.0 to 4.0 percent target.

The Department of Financ also said headline inflation could have eased to 3.2 percent in November given “more stable” food prices.

Highest estimate
ING Bank Manila and Singapore-based bank DBS have the highest forecasts, with both saying that inflation likely stayed at 3.5 percent in November.

Joey Cuyegkeng, senior economist at ING, said energy price pressures, some food components of the index and moderated weakness of the peso still had a lingering impact on prices.

Despite this, Cuyegkeng expects policy settings to remain unchanged during the next meeting of the Monetary Board on December 14. The likelihood for steady policy rates in the first quarter of 2018 also remains high, he added.

“The final version of the first package of the [government’s] tax reform [program]would likely have a more moderate price impact than earlier expectations. Such an outcome would give BSP some leeway to keep policy rates steady and consider the possibility of a 1 ppt (percentage point) cut in RRR (reserve requirement ratio),” he said.

DBS economist Gundy Cahyadi said the banking giant’s policy rate outlook remained based on robust domestic demand in the Philippines, global rates are trending higher into 2018 and that an excessively weak peso may not be in the best interest of the economy.

The economy’s overall growth momentum remained relatively strong, he added, with loan growth having ticked up to 20 percent the third quarter—the fastest since end-2014.

Cahyadi also said that the government’s expansionary fiscal policy remained an underlying driver as public consumption grew by 8.3 percent in the third quarter—also the fastest so far under the current administratiom.

“The implication on policy is quite clear, in our view. We expect the Bangko Sentral ng Pilipinas to hike rates by 100 basis points by the end of next year,” he said.

Other forecasts
Analysts from Metrobank Research, and Bank of the Philippine Islands (BPI), meanwhile, believe inflation eased to 3.3 percent in November.

Metrobank Research head Marc Bautista said consumer price growth was driven by oil and some key food commodities.

“We don’t expect any changes to the policy rates for the rest of the year, with full-year inflation likely coming in at 3.2 percent and well within the BSP inflation range,” he added.

BPI Vice-President and lead economist Emilio Neri Jr., meanwhile, cited base effects of energy prices for his forecast.

“This should allow the BSP-MB (Monetary Board) to reconsider an RRR rate cut in their December meeting,” he said.

University of Asia and the Pacific economist Victor Abola, for his part, forecast 3.2 percent inflation for November given stable food prices.

“With the lower headline rate from October, BSP will likely keep the policy rates in its next meeting in December,” he added.

Analysts from Land Bank of the Philippines, Ateneo de Manila University, and Banco de Oro (BDO) Unibank provided the lowest estimates of 3.1 percent.

Landbank market economist Guian Angelo Dumalagan said noted an unexpected appreciation of the peso and a tamer increase in food prices.

“The peso strengthened this month, tempering the rise in the costs of imported products, due to the Philippines’ better-than-expected growth in the third-quarter of 2017, concerns about weak US inflation, and uncertainty regarding the Trump administration’s tax bill,” he said.

Dumalaga added that food prices potentially grew at a slower pace amid generally better weather.

Still, the overall rate of increase in consumer prices likely remained above 3 percent, driven by rising oil prices and strong government spending that supported consumer demand.

“The expected decline in headline inflation may give more room for the BSP to keep its policy rates steady in December 2017, although the threat of rising global interest rates may still keep open the possibility of a BSP rate hike this month,” he said.

The economist pointed out that while slower inflation favored steady policy settings, rising global interest rates may require some preemptive tightening by the central bank as widening interest rate differentials may result in unwanted volatility in domestic financial markets.

To recall, Manila Electric Co raised its per kilowatt-hour (KWh) rate for households consuming 200 kWh to P9.63 in November from P9.28 a month ago.

Also, the price of diesel rose to P35.37 per liter from P34.51 while gasoline prices increased to P48.44 per liter from P46.89 in Metro Manila.

The peso, meanwhile, jumped back into a P50-per-dollar territory November 16, a development attributed to better-than-expected third quarter economic growth


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