January inflation seen below 5%

Inflation in January likely fell below 5 percent for the first time in eight months as food prices eased, and despite the second round of excise tax increases on certain products at the start of the year.

Economists polled by the Inquirer expect headline inflation last month to have settled between 4.5 percent and 4.9 percent.

The last time the rate of increase in prices of basic commodities was lower than 5 percent year-on-year was in May 2018, when the rate was 4.6 percent.

The forecasts were, however, higher than the 3.4 percent posted in January last year. Also, the forecast range is above the government’s 2-4 percent target for 2019.

The January inflation report will be released on Tuesday.

University of Asia and the Pacific economics professor Victor A. Abola, Ateneo de Manila University economics professor Alvin P. Ang, University of the Philippines-Los Baños’ Agham Cuevas and Rizal Commercial Banking Corp.’s Michael L. Ricafort projected the January inflation at 4.5 percent.
“Our estimate is 4.5 percent as food supplies stabilize and the impact of the new round of excise taxes is cushioned by a relatively slower pace of oil price increases and lower price of electricity,” Ang explained, referring to the scheduled higher levies under the Tax Reform for Acceleration and Inclusion (TRAIN) Act.

“Despite the increase in excise taxes, I think the downtrend in inflation rate will continue throughout the year,” Abola said.

“World crude oil prices are generally on a downward trend. Pressure on the prices of basic commodities like rice is also easing. The exchange rate is relatively stable. We may see this inflation trend continuing at least until the first half of the year and might possibly pick-up in the second half after the elections,” Cuevas said.

Ricafort also noted the “higher base/denominator effects starting January 2019 that mathematically lead to lower year-on-year inflation rate in 2019, exactly a year after the TRAIN Law took effect in January 2018.”

DBS Bank Ltd. economist Masyita Crystallin’s projected rate of increase in consumer prices last month was 4.7 percent, citing falling oil prices.

“We think the trend is going to continue this year. The government has implemented the second tranche of fuel price hike (by P1 for gasoline and P2 for diesel or up by 4 percent from December 2018) as planned as oil prices stayed below $80 a barrel (Mean of Platts Singapore). Rice price has been stable, growing at 3.7 percent year-on-year from 4.6 percent. Overall this year, pressure due to fuel price is likely to remain on the background, [but] more risk might come from rice price due to weather,” Crystallin said.

Citing Philippine Atmospheric, Geophysical and Astronomical Services Administration reports, the National Economic and Development Authority said there was a 70-percent chance of dry spell due to the El Niño phenomenon likely occurring this year.

The highest January inflation forecast was 4.9 percent, made by Moody’s Analytics economist Katrina Ell, who said “inflation will remain on a bumpy downtrend in 2019.”