Inflationary pressures were seen piling up over the policy horizon and impact adversely on next year’s inflation print as consequence of the recent decision by oil-exporting countries to scale back production.
Bank of the Philippine Islands (BPI) associate economist Nicholas Mapa made this conclusion following the decision of members of the Organization of then Petroleum Exporting Countries (Opec) meeting in Algiers cutting oil production in an effort to boost the price of oil to more “normalized” levels.
Mapa said the decision, along with the local currency’s recent weakness, could fan inflationary fires and help push the rate higher as early as next year.
Inflation in the country had been hitting lows since last year, after oil prices slumped and prices on key food items and utilities remained moderate.
In particular, the Bangko Sentral ng Pilipinas (BSP) missed the inflation target in 2015, when the rate averaged 1.4 percent for the year. The central bank targeted a rate ranging from 2 percent to 4 percent.
Similarly, this year, inflation was seen lower than the central bank’s target of only 1.5 percent in the first eight months. The BSP earlier said they expect inflation to average 1.7 percent for 2016, effectively conceding this year’s inflation path as below the target of 2 percent to 4 percent.
The local currency also continued to weaken on Friday, averaging 17 centavos weaker at the close of trading at the Philippine Dealing System (PDS) to P48.50 per dollar from P48.33 the day before. This was the weakest the peso had been in seven years.
The total traded volume for the day totaled $871.8 million, from only $583.5 million on Thursday.
The currency’s weakness, according to Mapa, could only add to the impact of the anticipated hike in oil prices on the basket of commodities known as the consumer price index or CPI.
In no case, however, should inflation hit 4 percent in 2017, although the actual inflation print could approach the upper limit of the target range, Mapa said.
He also said the local currency could get a reprieve from the strengthening US dollar
on the back of the oil deal.