3.2 inflation rate projected in December

Inflation likely slightly eased to 3.2 percent year-on-year in December as food prices remained stable despite the Christmas holiday celebrations, the Department of Finance said Wednesday.

In an economic bulletin, DOF Undersecretary and chief economist Gil S. Beltran also attributed the slight moderation in the rate of increase in prices of basic goods last month from 3.3 percent in November to lower power costs.

For Beltran, “low inflation is an indication that the country’s macroeconomic fundamentals remain strong.”

A 3.2-percent inflation rate in December will bring the full-year 2017 average to a similar 3.2 percent, within the government’s target range of 2-4 percent.

“Solid fundamentals backed by TRAIN [the Tax Reform for Acceleration and Inclusion Act package] 1 implementation, rice sector reform and the ‘Build, Build, Build’ policy would push the country’s growth to 7-8 percent this year and sustain manageable inflation,” Beltran said.

Beltran earlier said that removing the quota on rice imports and instead slapping them with a 35-percent tariff rate would bring down domestic prices by up to P7 a kilo.

Last week, the Bangko Sentral ng Pilipinas said it expected inflation in December to settle within the range of 2.9-3.6 percent, 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,” according to the BSP, citing the projection of its department of economic research.

The BSP’s projected range for December was higher than the actual 2.6-percent inflation rate posted a year ago.

During its last meeting on monetary policy for 2017 last 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.

For the period 2017 to 2020, the government targets inflation to settle within the similar 2-4 percent range.

The Cabinet-level Development Budget Coordination Committee last Dec. 22 decided to keep the target range as “the current manageable inflation environment could be sustained over the medium term,” the BSP had noted.

“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. Moreover, 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 healthy economic growth alongside the tax reform program would create demand-side impetus to inflation.”

Gross domestic product growth is expected to remain robust until 2022, as economic managers target 7-8 percent yearly expansion.

President Duterte on Dec. 19 signed into law package 1A of the TRAIN under Republic Act No. 10963, which starting Jan. 1 this year 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.