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BSP sees December inflation at 2.9-3.6%

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The Bangko Sentral ng Pilipinas headquarters in Manila -- BW FILE PHOTO

By Melissa Luz T. Lopez, Senior Reporter

INFLATION likely steadied in December from a month ago despite higher fuel and rice prices, the Bangko Sentral ng Pilipinas (BSP) said on Friday, enough to keep the full-year pace well within expectations.

Price increases for basic goods and services may have logged between 2.9-3.6% this month, based on estimates made by the BSP’s Department of Economic Research. This matches the forecast range given for November when inflation actually settled at 3.3%, marking a decline after four straight months of rising rates.

This also compares to a 2.6% reading in December 2016. Despite the uptick, the inflation forecast still settles comfortably within the 2-4% target band set by the monetary authority.

The Philippine Statistics Authority will release December and full-year inflation figures on Jan. 5, 2018.

“Higher domestic petroleum and rice prices could contribute to upward price pressures, which could be partly offset by the decline in Meralco’s electricity rates and stronger peso,” the central bank said.

Retail pump prices have posted net increases from a year ago even as fuel companies implemented a rollback on Dec. 12. Year-to-date, diesel prices are up by P5.65 per liter while gasoline posted a net increase of P6.09/liter. Kerosene prices are likewise higher by P3.87/liter.

Global crude prices are on the rise in recent months after oil-producing nations agreed to extend supply cuts until 2018.

Meanwhile, power distributor Manila Electric Co. reduced electricity rates by P0.3785 per kilowatt-hour after five straight months of increases, on the back of lower generation charge and a stronger peso.

The peso recovered against the dollar this December to trade at six-month highs, and even closed at the P49 level versus the greenback on Friday — the last trading day for the year. BSP Governor Nestor A. Espenilla, Jr. attributed the recovery of the local currency to strong remittance and equity inflows, coupled with “attractive” domestic fundamentals which have been reinforced by the signing into law of the tax reform package.

Abroad, the “soft” dollar due to investor uncertainty over a parallel tax legislation in the US has also helped boost the local currency, the central bank chief said.

The milder exchange rate helped reduce import prices, which feed into the cost of widely-used goods.

These developments would allow inflation to match the BSP’s 3.2% estimate for the entire year, which would also pick up from the 1.8% average logged in 2016.

The inter-agency Development Budget Coordination Committee (DBCC) kept the annual inflation target at 2-4% for 2018 to 2020, with the central bank seeing that price movements will remain “manageable” despite the expected impact of higher fuel costs and additional excise taxes which will kick in by Jan. 1, 2018.

“Expectations of healthy economic growth alongside the tax reform program would create demand-side impetus to inflation. Nonetheless, the favorable effect of sustained investment spending by the national government on the economy’s productive capacity would help temper inflation pressures,” the central bank said on Thursday.

The DBCC conducted its second review for the year on Dec. 22, where economic managers decided to keep the annual economic growth target at 7-8% from 2018 to 2022.

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