The period of slowing inflation when the rate of change in prices has fallen from a high of 4.9 percent in 2014 to a low of 2.4 percent only this January may already be bottoming out and soon begin climbing back up again, according to a price data analysis by the Manila unit of ING Bank.
Joey Cuyegkeng, the lender’s lead economist in Manila, said the pool of reserves from the various power-generating units in the main island of Luzon has begun to thin, a development he feared could lead to a tightness in supply and consequently to significantly higher energy prices.
Cuyegkeng said, while inflation consistently fell the past few months, the downtrend may have already hit a nadir in February as the economy slowly feeling the effects of the dry season ahead.
“Absent of another major downturn in oil prices for Asia, Philippine inflation could be at a bottoming-out process. We are now at a situation considered to be the start of tightening power reserves. Power outages during the dry season, which starts this month mean higher power costs,” Cuyegkeng said.
The country’s inflation rate has trended down for five consecutive months already since its peak in July and August last year when this averaged 4.9 percent. In just five months, inflation fell from 4.9 percent to only 2.4 percent last January.
The deceleration was traced in part to regulatory intervention by the central bank, when the monetary authorities adopted several liquidity-sapping measures, such as higher policy rates and soaking on so-called excess liquidity in the system via higher special deposits account (SDA) rates and the banks’ deposit reserve ratios.
Toward the close of 2014, the decelerating inflation was boosted further by the steep decline in oil prices in the international market all the way to February this year.
The price data on February should be released on Thursday, March 5, in accordance with the country’s commitments to such global data crunchers as the World Bank and the International Monetary Fund.
Bangko Sentral ng Pilipinas Governor Amando M. Tetangco Jr. said the February inflation report should range from 2.2 percent up to 3 percent, or still within the target range of 2 percent to 4 percent.
Aside from the rising costs of energy due to forecast tightness of supply, Cuyegkeng observed that oil prices in the international market have started to rise again, providing further upward risks to the growth of commodity prices down the line.
However, he said, the easing of congestion at the ports and more favorable food prices over the near term, also provide downside risks to inflation in the months ahead.