Dec. inflation at 2-yr high

Inflation hit a two-year high in December as the holiday season pushed food prices up. The average for 2016, however, fell below the government target.

In a report, the Philippine Statistics Authority said headline inflation last month rose 2.6 percent year-on-year, the fastest since December 2014’s 2.7 percent.

Even as the rate of increase in prices of basic goods peaked in December, the full-year average settled at 1.8 percent, below the government’s 2-4 percent target range for 2016. The full-year figure matched the Bangko Sentral ng Pilipinas’ forecast but was higher than the actual 2015 rate.

In 2015, inflation averaged 1.4 percent, also below target.

“The inflation prints are expected, and in line with our assessment that inflation would be inching up toward the government’s target over the balance of the policy horizon,” BSP Governor Amando M. Tetangco Jr. said in a text message to reporters.

“We will continue to monitor global and domestic financial market developments, shifts in global demand and supply of commodities, changes in global growth prospects to see how these would impact the domestic inflation dynamics, and whether there will be any need to make adjustments to our policy levers,” Tetangco added. The BSP expects inflation to average 3.3 percent this year, while the government kept the 2-4 percent target range.

Economic Planning Secretary Ernesto M. Pernia attributed the rise in inflation in December to “price increases partly due to the holiday season and supply constraints on some food items.”

In a statement, the National Economic and Development Authority noted that food inflation in December rose by 3.7 percent compared with 1.8 percent a year ago and 3.5 percent in November.

During the holidays, “faster increases in the prices of bread and cereals (1.6 percent from 1.5 percent in November), fish (5.5 percent from 4.7 percent), and meat (1.8 percent from 1.5 percent) were recorded,” Neda said.

Non-food inflation for December was pushed by transport (1.9 percent from 0.5 percent in November), and recreation and culture (1.7 percent from 1.6 percent). The faster spike in transport costs can be traced to increases in domestic petrol prices.

Pernia, who is also Neda chief, said the higher transport and commodity costs last month “reflected the hike in international oil prices caused by oil-producing countries’ decision to cut oil production by almost 1.8 million barrels per day.”

He said the inflation target for 2017 “considers the scenario of higher oil prices, pending petitions for adjustments in electricity rates and strong domestic economic activity.”

“The inflation outlook is supported by the country’s brisk domestic demand conditions, buoyed by solid private household spending, higher government expenditure, and adequate domestic liquidity,” Pernia said.

As Typhoons “Karen,” “Lawin” and “Nina” that hit the country toward the end of 2016 damaged farms that grow rice, Pernia said inflation was seen to pick up early this year, adding that rice

accounts for a “sizable” portion of the consumer price index (CPI) basket.

“The volatility in rice prices could affect the overall welfare of the Filipino families, particularly the poor who spend some 20 percent of their incomes on rice. Therefore, the government needs to promote more resilient practices for rice production to minimize the impacts of climate-related shocks,” according to Pernia.

In a briefing also on Thursday, University of Asia and the Pacific economics professor Victor A. Abola said he expected inflation to rise 3 percent this year.

Metrobank Group’s First Metro Investment Corp. (FMIC) sees headline inflation settling within 2.8-3.2 percent in 2017, said its president, Rabboni Francis B. Arjonillo.

As such, FMIC expects two interest rate hikes by the BSP this year, said Christopher Ma. Carmelo Y. Salazar, senior vice president and head of the financial markets group.