Inflation seen below 6% in December

Inflation likely further eased in December and fell below November’s 6 percent year-on-year rise, on track to easing further and stay within the government target range next year, economists said last week.

Ateneo de Manila University economics professor Alvin P. Ang projected a 5.8-percent increase in basic commodities this month as “food prices have remained stable though some uptick was observed due to seasonal activities,” referring to the Christmas holidays.

“Other basket movers are household furnishings, restaurant and communication all due to the season,” Ang added.

The last time inflation was below 6 percent was in July, when the rate was 5.7 percent.

Moody’s Analytics economist Katrina Ell said headline inflation “cooled” to 5.5 percent in December.

The forecast of Rizal Commercial Banking Corp.’s Michael L. Ricafort was 5.3 percent during the month.

Renewed easing

“The major catalysts for the renewed easing of inflation are the further declines in global oil prices to the lowest levels in 15-16 months amid increased global oil supply despite the recent cut in oil production output by Opec (Organization of the Petroleum-Exporting Countries) on Dec. 7 (global oil prices already down by about minus 40 percent from the four-year highs posted on Oct. 4, resulting to further declines in local fuel pump prices and lower prices of affected goods and services in the local economy); reduction in minimum transport/jeepney fares by about P1 to P9, and further easing of the prices of rice, vegetables and other food items (though partly offset by some seasonal uptick in the prices of some food items in December due to seasonal increase in demand due to Christmas/Yuletide-related spending),” Ricafort explained.

“Further easing of inflation also supported by the higher base/denominator effects from a year ago (partly resulting to lower year-on-year inflation, assuming all other factors are the same),” he added.

Projections

The inflation rate in December last year was 2.9 percent.

As expected, economists see average inflation for the entire 2018 above the government’s target range of 2-4 percent—Ang and Ricafort’s computations showed it would hit 5.3 percent.

As of end-November, the average rate was 5.2 percent.

But Ricafort said “inflation has indeed peaked already and has started its easing trend, and could even average as low as 3.5 percent (or even lower than that) for 2019 especially if the rice tariffication and other non-monetary measures to improve food supply and lower food prices are implemented and become effective.”

Return to target

Ricafort said he expected headline inflation to ease within government target “as early as the latter part of the first quarter or the second quarter of 2019.”

For her part, Ell projected the return to target band by the second half of next year.

The government, through the Philippine Statistics Authority (PSA), will release the December and full-year 2018 inflation figures on Friday, Jan. 4.