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Dec inflation seen at 2.9-3.6% range

Electricity rates cut, stronger peso to offset impact of higher petroleum, rice prices
By: - Reporter / @bendeveraINQ
/ 05:24 AM December 30, 2017

The Bangko Sentral ng Pilipinas (BSP) yesterday said it expected inflation in December to settle within the 2.9-3.6 percent range, similar to its forecast in November and faster than a year ago.

“Higher domestic petroleum and rice prices could contribute to upward price pressures, which could be partly offset by the decline in Meralco’s electricity rates and stronger peso,” the BSP said in a statement, citing the projection of its economic research unit.

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The projected range for December was higher than the actual 2.6 percent inflation rate posted in the same month last year.

The BSP projected the same range for November, while the actual rate of increase in prices of basic goods that month eased to 3.3 percent following the three-year high of 3.5 percent in October.

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The BSP said its forecast range for December would bring the full-year 2017 inflation average to 3.2 percent, well within the target for the year.

In its last monetary policy meeting on Dec. 14, the BSP’s policy-making Monetary Board maintained its inflation forecasts of 3.2 percent for 2017, 3.4 percent for 2018 and 3.2 percent for 2019.

As of November, headline inflation averaged 3.2 percent.

The government targets inflation to settle within the range of 2-4 percent this year.

Last year, the inflation rate was 1.8 percent, below the 2-4 percent target.

In the meantime, the Cabinet-level Development Budget Coordination Committee on Dec. 22 kept the inflation target for 2018 to 2020 at 2-4 percent on expectations of “manageable” increases in the prices of basic goods notwithstanding the inflationary impact of the first tax reform package to be implemented starting early next year.

Last Thursday, the BSP said “the current manageable inflation environment could be sustained over the medium term.”

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“Inflation projections and expectations continue to indicate that inflation could settle within the current inflation target, although there are upside risks to the inflation outlook. The inflationary impact of the potential increases in international commodity prices is assessed to be moderate, supported by lower pass-through to inflation of exchange rate and external commodity price inflation,” the BSP had said.

According to the BSP, “expectations of a healthy economic growth alongside the tax reform program would create demand-side impetus to inflation.”

President Duterte last week signed into law package 1A of the Tax Reform for Acceleration and Inclusion Act (TRAIN) under Republic Act No. 10963 which slashed and restructured personal income tax rates that stayed the same for two decades, while also jacking up or slapping new taxes on consumption of oil, cigarettes, sugary drinks and vehicles.

“Nonetheless, the favorable effect of sustained investment spending by the national government on the economy’s productive capacity would help temper inflation pressures,” according to the BSP.

BSP estimates showed that inflation could increase by 0.85-1.2 percentage points in 2018 and by 0.4-0.55 percentage point in 2019 due to the TRAIN.

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TAGS: Bangko Sentral ng Pilipinas (BSP), electricity rates, Inflation, petroleum and rice prices
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