Neda sees PHL inflation rate rising; analysts expect prices to stabilize

By Cai U. Ordinario & Bianca Cuaresma

INFLATION pushed still higher in March to 3.4 percent, its fifth in a series of increments that has left local economists divided on whether the rate of change in prices should trend lower from now on.

The country’s chief economist, Socioeconomic Planning Secretary and Neda Director General Ernesto M. Pernia, sees ominous portents on the economic horizon, while colleagues in the discipline anticipate a deceleration.

Pernia said electricity rates, for one, are bound to increase in the next two months because of the shutdown of the Malampaya Gas Field. 

The scheduled shutdowns include the power plants in Ilijan, Santa Rita and San Lorenzo. The shift to liquid fuel from natural gas also helped push household electricity rate higher to P9.67 per kilowatt-hour.

“Higher electricity rates are expected to persist in the next two months, as the Energy Regulation Commission [ERC] will spread the additional cost from the use of liquid fuel, which is more expensive than natural gas, until May 2017,” Pernia said.

He also said adjustments in transport fares and electricity rates in the coming months exert additional pressure on prices, and the continued depreciation of the local currency against the US dollar exerts added pressure on the cost of basic commodities and services.

Pernia, however, said inflationary pressure could ease with the removal of quantitative restrictions on rice importation and the timely augmentation of supplies.

“The recent upward trend in inflation needs to be closely monitored. The government needs to implement timely mitigating measures to ensure that prices remain stable,” Pernia said.

The first three months of 2017 saw the Philippines’s inflation rate trending upward, partly due to recent hikes in food and oil prices, and also owing to a generally low base in 2016. 

But there are those who say the increases in commodity prices this year may already be over. 

This, despite the 28-month-high inflation in March of 3.4 percent that sent the first-quarter price increases rising to 3.2 percent.

Ateneo de Manila University EagleWatch senior fellow Alvin P. Ang said the higher inflation was due to base effects and that, starting in the second quarter, price increases should prove tempered.

“It [inflation] will start going down next month,” Ang said. “[Inflation] peaked in March and, hopefully, will end the year below 2 percent.”

Inflation in January 2016 stood at 1.3 percent and at 0.9 percent in February 2016. It rose faster in March and April 2016 to 1.1 percent.  

“Prices are not that high. This [increase in inflation] was mainly due to base effects,” Ang said. 

University of Asia and the Pacific economist Victor A. Abola, on the other hand, said: “There is little pressure, henceforth, from good prices, which are normalizing after the unusual Q4 2016 and Q1 2017 weather,” Abola said. “That’s why the BSP [Bangko Sentral ng Pilipinas] projects a slowdown to 3 percent by 2018, which should start in Q4.”

According to him, inflation, ranging from 3.2 percent to 3.6 percent, is already the “new normal” for the country, and that the BSP should still be able to achieve its inflation target this year, since there is “little pressure” to cause an increase in prices.

Inflation in March 2017 was the fastest since November 2014, but still within government target and the median-market expectation of 3.4 percent for the month.

Inflation in the nonfood group accelerated to 2.8 percent, from 2.5 percent in February 2017 and from 0.4 percent in March 2016. This was mainly due to the faster year-on-year price adjustments of electricity, gas and other fuels, which hiked to 9.3 percent.

Other subcommodity groups that pushed inflation of nonfood items upward were furnishing, household equipment and routine maintenance of the house, at 2.5 percent, from 2.3 percent, and health, at 2.8 percent, from 2.6 percent. Inflation in the food group decelerated to 4.2 percent in March 2017, from 4.3 percent in the previous month. This is due to slower price adjustments in fish, fruits, vegetables, sugar, jam, honey, chocolate and confectionery, and other food products.

However, inflation in rice and meat accelerated to 2.3 percent and 3.2 percent, respectively. Both could be due to importation constraints imposed by the government. The BSP was quick to soothe apprehension over rising prices in the country, saying current models predict a deceleration toward year-end.

On Wednesday the Philippine Statistics Authority (PSA) reported inflation averaging 3.4 percent in March, resulting to first-quarter inflation averaging 3.1 percent.

This marked an acceleration from only 3.3 percent rate seen in February, but nevertheless still within the 2-percent to 4-percent target range. “Inflation for March tipped at 3.4 [percent], slightly higher than the February imprint, as expected and well within our forecast range of 3 percent to 3.8 [percent] for the month,” BSP Governor Amando M. Tetangco Jr. told reporters, quickly adding they expect inflation pressures to recede near the third quarter.

“As we have said, our runs show that the path of monthly inflation shows upticks until about the third quarter of this year before slowly decelerating to average within the target range,” the governor said.

“While we don’t see any immediate need to tweak policy-rate settings, we are watching the international oil-supply picture, developments in the CTRP [Comprehensive Tax Reform Package] and geopolitical developments, among others. We will make adjustments if and when needed,” he added.

The BSP previously revised the forecast inflation to only 3.4 percent this year, from the February forecast of 3.5 percent. The forecast for 2018 was also revised from 3.1 percent to 3 percent.

The BSP said the balance of risks remains tilted toward the upside.

The upside factors include the transitory impact of the proposed tax-reform program, as well as possible adjustments in transportation fares and electricity rates. The monetary Board also noted the “beneficial effects” of the removal of quantitative restrictions on rice imports. Rice accounts for 9 percent of the consumer price basket.

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