ADB sees Philippine inflation at 10-year high of 5.3% in 2018

MANILA, Philippines – The Asian Development Bank (ADB) sees inflation in the Philippines hitting a 10-year high of 5.3 percent in 2018 even as the central bank’s recent string of aggressive interest rate hikes was expected to ease consumer price increases in the near term.

In its Asian Development Outlook Supplement December 2018 report released Wednesday, the Manila-based multilateral lender further jacked up its inflation forecast for the Philippines from 5 percent in its Asian Development Outlook 2018 Update Report last September.

At 5.3 percent, it will be the highest annual headline inflation rate since the 8.2 percent posted in 2008, using 2012 prices as base, Philippine Statistics Authority (PSA) data showed.

It will also remain above the government’s target range of 2-4 percent.

In recent months, the ADB noted that “food prices rose significantly owing to weak agricultural output, and high global oil prices early in the year and new excise taxes contributed to inflation,” referring to the Tax Reform for Acceleration and Inclusion (TRAIN) Act.

“While inflation is expected to ease, the full-year average is still likely to exceed the projection in [September]… The recent buildup in inflationary pressure should moderate next year, with inflation still projected at 4 percent” or at the top end of the government’s similar 2-4 percent target range for 2019, the ADB said.

“Tight monetary policy will kick in following a cumulative rate hike of 175 basis points implemented from May to November,” it added.

Also, the ADB noted that elevated global oil prices and weaker currencies increased inflationary pressures not only in the Philippines but also in Laos and Myanmar.

Recent heavy rains also damaged agricultural output, jacking up food prices in the Philippines and Laos, the ADB said.

But moving forward, it said “oil prices continue to drop as supply outpaces expectations, which reduces pressure on external balances in the region, particularly in India and the Philippines.”

As such, the ADB kept its gross domestic product (GDP) growth forecasts of 6.4 percent in 2018 and 6.7 percent in 2019, below the government target ranges of 6.5-6.9 percent this year and 7-8 percent next year.

The ADB was bullish on the robust infrastructure investments in the Philippines, but lamented its lagging agriculture sector.

“Infrastructure spending remained strong in Brunei Darussalam, Indonesia, the Philippines and Thailand, but declined in Malaysia… On the production side, Myanmar and Thailand benefitted from improved agricultural output, which languished in Indonesia, Laos, and the Philippines in the wake of natural disasters and bad weather,” according to the ADB. /kga