Prices of consumer goods and services are expected to have risen at a more moderate pace in January due to easing rice prices, although the impact of the second consecutive year of excise tax increases will continue to exert upward pressure on the inflation rate.
According to the Bangko Sentral ng Pilipinas, its economists expect the consumer price index in the first month of 2019 to settle within the 4.3-5.1 percent range.
The inflation rate for December 2018 stood at 5.1 percent and the annual average at the end of last year came in at 5.2 percent, overshooting the central bank’s target range of 2-4 percent due to the combined effects of high rice prices locally, expensive crude oil in the global market and the first tranche of the Duterte administration’s tax hike package.
For January 2019, the BSP said “domestic oil price hikes, due to higher international crude oil prices and the second tranche of the excise tax adjustment from the TRAIN law, is seen to be the primary driver of inflation for the month.”
“In addition, higher fish and vegetable prices due to colder weather conditions and the annual adjustments in the excise taxes of alcoholic beverages from the Sin Tax law could result in additional upward price pressures,” the central bank’s economists added.
But these factors may be partly offset by lower rice prices, downward adjustment in electricity rates, and the slight appreciation of the peso.
The government is set to release the official inflation date for January on Feb. 5.
“Looking ahead, the BSP will remain watchful of evolving inflationary conditions to ensure that the monetary policy stance remains consistent with the BSP’s price stability mandate,” they added.
With the expected downtrend in the inflation rate this year, the local unit of Dutch banking giant ING expects the central bank to gain elbow room for reversing the monetary policy tightening implemented last year to curb price hikes.
In an e-mail to the press, ING Bank senior economist Nicholas Mapa said the central bank could now proceed with the infusion of more liquidity into the financial system that BSP Governor Nestor Espenilla Jr. had to abort last year amid rising prices.
“The official statement of the Governor delivered by Deputy Governor [Chuchi] Fonacier 12 months later bare makings of another reserve requirement ratio cut in the offing as Espenilla ‘now see(s) scope for further reduction on the [bank reserves] as we see inflation returning firmly to within target and with inflation expectations stabilizing,’” Mapa noted.
“Touting inflation on a deceleration trend and seemingly well-anchored inflation expectations, the Governor may be prepping the market for another round of cuts to [bank reserve levels] as he looks to accomplish his agenda,” the economist said. “It appears that Espenilla’s new decision criteria takes into account inflation in 2019, as opposed to his view in 2018 that infusion of fresh liquidity had no effect on inflation.”