Well-behaved inflation projected this year

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The Department of Finance (DOF) has plotted an inflation path showing within-target price movements this year no matter the anticipated uptick in consumer prices resulting from the rebalancing of fuel prices.

Based on the latest economic bulletin submitted by Undersecretary Gil S. Beltran to Finance Secretary Carlos G. Dominguez III, inflation was seen higher than 2.0 percent in the near term, as world petroleum prices start to rebalance.

“Inflation will likely clock above 2.0 percent in the coming months as suggested by [January] core inflation of 2.5 percent. Rising energy prices will contribute to higher inflation,” said Beltran, who is also DOF chief economist.

This was based on world oil prices rising 28.5 percent to $55 per barrel this year, from $42.8 per barrel in 2016, according to latest World Bank forecasts.

In January  the Manila Electric Co. (Meralco) charged only P8.4 per kilowatt-hour (kWh) for consumption averaging only 300 kWh per month, lower than charges averaging P8.7 in January last year. The distributor’s generation charge also fell to only P3.7 during the month, from P3.9 last year.

The average price of gasoline increased to P46.6 per liter, from P38.2 in January of 2016, and P44.8 for the month of December in the same year. The average price of diesel in Metro Manila oil companies rose to P30.8 per liter, from P20.5 in January 2016 and P29.1 last December.

Only in January, inflation averaged 2.7 percent, matching the DOF internal forecast of a 0.1-percentage-point increase compared to the previous month’s 2.6 percent, but within the target range of 2 percent to 4 percent set by the Bangko Sentral ng Pilipinas (BSP).

Year-on-year (YOY) the January 2017 inflation rate of 2.7 percent was higher compared to the 1.3 percent in the same month last year. The DOF attributed the increase as driven by the increase in food prices.

Food and nonalcoholic beverages contributed 1.5 percentage points to the 2.7-percent inflation rate, or more than half of the general price increase. The sector recorded an inflation rate of 3.4 percent in January this year, higher compared to only 1.7 percent in January last year.

In December 2016 food and nonalcoholic beverages posted inflation averaging 3.6 percent, according to data from the Philippine Statistics Authority (PSA).

Transport prices rose to 2.4 percent for January 2017, from 1.5 percent in the same month the previous year and 1.9 percent last December; clothing and footwear jumped to 2.8 percent, from 2.1 percent in January 2016 and 2.5 percent last December; housing, utilities and fuels inched up to 1.8 percent, from 0.5 percent YOY and 1.3 percent last December; and recreation and culture increased to 1.9 percent, from 1 percent last year and 1.7 percent last December.

The prices for health also moved up to 2.6 percent this year, from 1.8 percent in January 2016 and 2.5 percent last December; and restaurant and miscellaneous services rose to 2.2 percent, from 1.4 percent year-on-year and 2.1 percent in  December 2016.

Alcoholic beverages and tobacco prices also rose to 5.6 percent, from the 4.7 percent registered in January 2016 but lower compared to the 6.3 percent last December 2016. Furnishings and household equipment fell to 2.3 percent, from 2.4 percent in December 2016 but rose compared to the 1.5 percent recorded YOY.

According to Beltran, despite the projected increase in fuel prices, the country’s macroeconomic fundamentals remained sound as inflation has kept to within
target range.

“This [sound macroeconomic fundamentals] will provide economic authorities the flexibility to maintain rapid growth despite uncertainties in the world economy,” Beltran said.

Last week the Monetary Board (MB) revised the country’s inflation outlook to 3.5 percent, from 3.3 percent, in 2017, and 3.1 percent, from 3 percent, in 2018. BSP Deputy Governor Nestor A. Espenilla Jr. explained the MB decision was based on latest inflation dynamics and the risks to inflation outlook over the policy horizon.