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Monday, October 23, 2017 | MANILA, PHILIPPINES
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   economic indicators

Date posted: Sunday, January 08, 2017 | Manila, Philippines

BY Christine Joyce S. Castañeda Researcher

December inflation fastest in 2 years

ANNUAL INFLATION closed 2016 at its fastest pace in two years, but stayed below the official target for the year.

In a report, the Philippine Statistics Authority (PSA) said headline inflation picked up to 2.6% last month from November’s 2.5% and the 1.5% recorded in December 2015. It was the fastest since the 2.7% reading in December 2014.

Last month’s inflation turnout was lower than the 2.8% estimate median in BusinessWorld’s poll of seven economists last week and falls within the 2.2-3.0% range given by the Bangko Sentral ng Pilipinas (BSP).

The December print brought full-year average to 1.8%, matching BSP’s 1.8% full-year forecast but still short of the official 2-4% target band. It was, however, higher than 2015’s 1.4%.

“The uptick in inflation last month was caused by price increases partly due to the holiday season and supply constraints on some food items,” National Economic and Development Authority Director-General Ernesto M. Pernia said in a statement.

“The higher prices in transport commodity reflected the hike in international oil prices caused by oil-producing countries’ decision to cut oil production by almost 1.8 million barrels per day.”

BSP Governor Amando M. Tetangco, Jr. told reporters separately in a text message yesterday that “[t]he inflation prints are expected and in line with our assessment that inflation would be inching up towards the national government target over the balance of the policy horizon.”

Inflation has been gradually picking up since the second half of 2016 to return above the 2% level, with the general price increases expected to return to the target range over the coming years.

The inter-agency Development Budget Coordination Committee has maintained the 2-4% annual inflation target until 2020.

For 2017, inflation is expected to average 3.3% before slightly tapering to 3% by 2018.

Sought for comment, Land Bank of the Philippines market economist Guian Angelo S. Dumalagan said that December’s inflation was due to “upbeat consumer demand, higher oil prices and a weaker peso.”

For his part, Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines ascribed the December uptick in prices to Christmas-related factors. “Transport, and recreation and culture registered annual higher rates, not to mention the heavily weighted food and non-alcoholic beverages index, all contributing to the increase in the level of prices overall,” he added.

The food and non-alcoholic beverages index -- which has the biggest contribution of 38.98% to the basket of goods and services on which inflation is based -- picked up 3.6% last month from November’s 3.3% and 1.7% in December 2015. The food-alone index grew by 3.7%.

Higher annual increment recorded in the transport (1.9%) and recreation and culture (1.7%) indices also contributed to the uptick.

Excluding volatile food and energy items, core inflation quickened to 2.5% last month compared to November’s 2.4% and December last year’s 2.1%. For the entire 2016, core inflation averaged 1.9%, down from the 2.1% in 2015.

Looking ahead, Mr. Pernia noted that faster inflation can be seen in the early part of the year due to rice damage from typhoons Karen, Lawin and Nina.

UnionBank’s Mr. Asuncion said: “I am looking at 2.9% inflation rate for 2017 due mainly to uncertainties headlined by the external environment. Locally, the increase of oil prices will largely play out as well on the trend.”

For his part, Landbank’s Mr. Dumalagan said: “Price pressures could come from the recovery in oil prices, the depreciation of the peso and increased consumer demand due to likely higher government spending. Bets of stronger agricultural production, however, could limit the rise in food prices.”

Eugenia Fabon Victorino, economist at ANZ Research, said strong domestic demand will likely drive faster price increases, in light of plans to ramp up fiscal spending and robust household spending due to rising incomes.

“In light of the strong domestic demand, rising inflation outlook and the central bank’s 15-24 months of monetary policy transmission lag, we expect BSP to resume tightening its policy stance by Q3,” Ms. Victorino said.

The central bank last hiked the policy rate in September 2014, followed by procedural cuts that took effect in June 2016 for the shift to an interest rate corridor.

“We will continue to monitor global and domestic financial market developments, shifts in global demand and supply of commodities, changes in global growth prospects to see how these would impact the domestic inflation dynamics, and whether there will be any need to make adjustments to our policy levers,” BSP’s Mr. Tetangco said. -- with Melissa Luz T. Lopez

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