THE Department of Finance (DOF) believes inflation will remain benign in the coming months as the usual drivers of price increases will have minimal impact due to the lockdown and “new normal.”
In an economic bulletin, the DOF said these usual drivers include oil prices, which have been posting declines in the past few months.
The DOF said average prices of nonfood items decelerated to 0.7 percent year-on-year as the slump in global oil prices drove down domestic pump prices and, consequently, transport costs.
“Core inflation in April was 2.8 percent, down from more than 3 percent in March, indicating easing inflation in the next few months,” DOF said.
Core inflation, the PSA said, is used as an indicator of long-term inflation trend and future inflation. Long-term inflation is affected by demand conditions and influenced by monetary policy.
It measures the change in average consumer prices after excluding items in the basket of goods with volatile price movements.
Core inflation excludes items such as rice, corn, meat, fish, vegetables, and petroleum and fuels for personal use, which together account for 22.8 percent of the Consumer Price Index, or basket of goods.
“Still, it is important that in this time of expanded community quarantine, the supply chain of basic goods and other necessary items, while subject to the requirements of public health, should not be broken,” the DOF said.
Earlier, Ateneo Center for Economic Research and Development (Acerd) Director Alvin P. Ang told the BusinessMirror that a 2.2-percent inflation rate was higher than his initial forecast.
However, Ang said inflation will remain low for the rest of the year given the extension of the lockdown and the generally slow growth in the global economy.
University of Asia and the Pacific School of Economics Dean Cid Terosa told this newspaper that if the enhanced community quarantine (ECQ) is lifted and the spread of the virus is contained, only then can demand recover.
This recovery could allow inflation—an indicator of demand—to rise in June and peak at around 2.8 percent to 3 percent by the end of the first semester.
Terosa said the recovery of spending and “pent-up demand” will allow inflation to increase beyond 3 percent.
Unionbank Chief Economist Ruben Carlo O. Asuncion agreed, but said the recovery in demand may still be muted immediately after the ECQ and the general community quarantine (GCQ) are lifted.
A true recovery in demand, Asuncion told this newspaper, would only be possible if a vaccine is discovered and successfully administered.
“A vaccine discovered and its successful administration to the population will definitely turbo-boost demand immediately,” Asuncion said.
Data showed inflation in NCR eased to 1.2 percent in April 2020, from 1.7 percent in the previous month. The year-on-year inflation in the area in April 2019 was higher at 3.1 percent.
The slowdown in inflation in NCR was due to declines in the annual rates posted in the indices of housing, water, electricity, gas and other fuels at 1.7 percent; and transport at 6.5 percent.
Meanwhile, the annual inflation in areas outside NCR (AONCR) also slowed to 2.5 percent in April 2020, from 2.7 percent in March 2020. In April 2019 inflation in AONCR was posted at 3 percent.
Further drop in the annual rate of transport index at 6 percent during the month primarily pushed down the inflation in AONCR.
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