Inflation seen up to 1.5% in December

The cost of basic goods likely rose at a faster average rate of 1.5 percent year-on-year in December on the back of rising food prices coupled with robust consumer demand during the holidays, according to the Department of Finance’s chief economist.

In an economic bulletin on Monday, Finance Undersecretary Gil S. Beltran attributed his forecast of higher inflation during the last month of 2015 to the adverse effect of typhoon “Lando” on food prices alongside “holiday-related demand upsurge.”

For November 2015, the official inflation rate was reported at 1.1 percent.

Typhoon “Lando” battered many parts of Luzon last October, damaging food crops. “The recovery of food supply is very important after a strong typhoon; authorities can encourage and develop private sector sources of seeds and seedlings and look into alternative ways of replenishing lost stock [perhaps through imports from Asean],” Beltran said.

Besides food, increased costs of transportation, alcoholic beverages and tobacco, as well as cultural and recreational services helped push up inflation in December, Beltran added.

Also, “inflation is normalizing from the dampening impact of oil prices,” the Finance official said.

The Bangko Sentral ng Pilipinas (BSP) earlier said it was expecting the rate of increase in the prices of basic commodities to be lower than the 2 to 4 percent projection for 2015, as inflation in December would likely match or exceed that in November.

The BSP’s forecast “suggests that December inflation could be within the 1.1 to 1.9 percent range,” Governor Amando M. Tetangco Jr. said in a text message last week.

“The increase in cooking gas prices, upward electricity rate adjustment, transitory increase in food prices due to Typhoon ‘Nona’ and the weaker peso could provide upward inflation pressures,” Tetangco noted. A state of national calamity was declared by President Benigno Aquino III following the onslaught of Nona last month.

“Meanwhile, lower domestic rice and petroleum prices could keep inflation subdued for the month,” Tetangco added.

The government earlier reported that inflation had already bottomed out, rising to 1.1 percent in November, from a record low of 0.4 percent in the two preceding months, mainly due to a sharp rise in the prices of a number of food items as a result of Lando.

For the entire 2015, Tetangco said the average inflation “is expected to be below the 2 to 4 percent target.”

The Cabinet-level, interagency Development Budget Coordination Committee had kept the 2 to 4 percent inflation target range for 2016-2018 on expectations that the slow rise in prices of basic goods would be maintained in the next three years.

“The current low inflation environment could be sustained over the medium term as underlying structural inflation dynamics are favorable with the improved ability of the domestic economy to accommodate supply shocks,” the BSP added in a statement last week.

“Headline inflation has been observed to return faster to the target while the influence of the foreign exchange rate has diminished. Structural reforms in the economy could generate further productivity gains and raise the economy’s growth potential, allowing the economy to grow at a respectable rate while maintaining prices stable,” it added.

During its last meeting for 2015, the BSP’s Monetary Board raised inflation forecasts for the next two years amid emerging risks to prices.

The Monetary Board raised inflation projections for 2016 and 2017 to 2.4 percent (from 2.3 percent) and 3.2 percent (from 2.9 percent), respectively.

BSP Deputy Governor Diwa C. Guinigundo told reporters after the Monetary Board meeting that there were three reasons for the higher inflation forecasts for the next two years: The higher reading of the November inflation rate; the impact of the weakening peso against the US dollar; and the increase in prices of some key food commodities because of weather disturbances.

Tetangco had cited that “potential upward pressures could come from the impact of prolonged El Niño dry weather conditions on food prices and utility rates as well as pending petitions for power rate adjustments.” The dry spell due to El Niño is expected to peak early this year.

In terms of the foreign exchange, “the depreciation of the peso against the US dollar could impose some pressures on inflation moving forward,” Guinigundo said.