‘High inflation a knee-jerk reaction to recent reforms’

While the economy is abuzz with the spike in inflation rate and its implications going forward, an economist of Singapore-based DBS Bank said the significant rise in the prices of consumer goods may just be a “knee-jerk” reaction to recent reforms.

In his commentary on the upcoming inflation numbers for February, DBS Bank economist Gundy Cahyadi said the higher growth in commodity prices as seen in early-2018 may just be temporary and fleeting.

“While the surge in CPI [consumer price index] inflation took us by surprise, it remains to be seen how persistent was the impact from the tax reforms on general prices,” Cahyadi said.

“At this juncture, we think that the impact was more like a knee-jerk reaction, although a more pronounced implication may still be felt through the impact on underlying price expectations,” he added.

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The Singapore-based economist forecasts a more optimistic tone to local inflation, saying the growth of consumer prices likely have reached 3.8 percent in February. This is lower than the Central Bank’s 4-percent to 4.8-percent inflation forecast range for the month.

“As it is, higher food prices and the possibility of higher crude oil prices are enough to drive up price expectations going forward. The upward trend in inflation persists,” the economist said.

Earlier this week, the Bangko Sentral ng Pilipinas (BSP) said inflation could have reached as high as 4.8 percent in February, as higher food and utility prices continue to hound the economy.

The BSP particularly said inflation could settle within 4 percent to 4.8 percent for February this year, which means the price growth will accelerate above the inflation target for the month.

The government keeps a 2-percent to 4-percent target range on average for inflation in 2018. Failure to keep inflation within the target by the end of 2018 will warrant a public explanation by the Central Bank to the Palace.

The BSP Department of Economic Research said the high inflation projection for the month is due to higher electricity and food prices in February.

Should BSP’s inflation forecast be realized, the economy in February will see the highest acceleration of consumer prices since 2014.

Cahyadi, meanwhile, said aside from inflation, eyes are also focused on the trade data this week, following the multiyear high $4-billion deficit in December.

“Robust investment growth will continue to support import growth going forward, while export growth may see some
pullback this year, following a stellar year in 2017,” Cahyadi said.

“As such, we continue to see a widening trade-current account deficit going forward,” he added.

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