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February inflation seen back within gov’t target

By: - Reporter / @bendeveraINQ
/ 05:17 AM March 04, 2019

Inflation likely returned within the government’s 2-4 percent target range in February as food prices continued their downward trend alongside a stronger peso.

Majority of the economists polled by the Inquirer last week projected the rate of increase in prices of basic commodities to have settled below 4 percent last month.

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If the headline inflation rate to be reported by the government on Tuesday (March 5) falls below 4 percent, it would be the lowest since the 3.8 percent in February last year.

Banco De Oro Unibank Inc. chief market strategist Jonathan Ravelas had the lowest forecast of 3.6 percent, while Rizal Commercial Banking Corp.’s Michael L. Ricafort computed February inflation at 3.7 percent.

“Year-on-year inflation continue to go down due to lower prices of food, especially rice, amid increased imports as part of the government’s nonmonetary measures as highlighted by the upcoming rice tariffication law that will further [boost] rice imports and supply in the local market and will lead to further decline in the local prices of rice [which accounts for about 10 percent of the CPI (consumer price index) basket],” Ricafort said.

“Stronger peso exchange rate recently, among the best in nearly 10 months [since May 4, 2018], amid increased/consistent net foreign portfolio investments/hot money inflows into the country since the start of 2019 that supported the gains in the local financial markets amid expectations of further easing/declining trend in inflation, also resulted to lower prices of imports and also contributing to the easing in overall inflation,” Ricafort added.

ING Bank senior economist Nicholas Antonio T. Mapa said inflation likely further eased to 3.8 percent year-on-year last month partly due to a high base amid elevated prices last year.

“This behavior of sharp deceleration in price pressures can be expected from supply side-induced inflation. Given that 2018’s inflation episode was largely driven by supply side issues such as shortages in rice stocks, crop damage from storms and the oil spike, once these bottlenecks were resolved, inflation has come down in a rather rapid way. This is likely why the BSP (Bangko Sentral ng Pilipinas) is currently forecasting inflation of only 3.1 percent for 2019, barring any supply disruptions on the food supply chain and/or oil prices,” Mapa explained.

University of Asia and the Pacific economics professor Victor A. Abola and Standard Chartered Bank economist for Asia Chidu Narayanan projected 3.9-percent inflation in February.

University of the Philippines-Los Baños’ Agham Cuevas had a forecast of 4.1 percent, above the government target range for this year until 2022, but slower than the 4.4 percent in January.

“While world crude oil prices and local pump prices of petroleum have risen in the past month, this has not been translated yet to a rise in the general price levels as food prices remained relatively stable with rice prices lower on average than the previous period due to increased supply from the recent harvest and the arrival of imports,” Cuevas said.

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London-based Capital Economics sees February inflation at 4.2 percent such that “if price pressures continue to fall back as we expect, it is likely to open the door to an early interest rate cut” by the BSP.

Amid higher-than-expected inflation last year, the BSP aggressively raised key interest rates by a total of 175 basis points in 2018.

The highest forecast was DBS Bank Ltd. economist Masyita Crystallin’s 4.3 percent even as she said that “the impact of increased excise taxes [from the Tax Reform for Acceleration and Inclusion Act) has continued to disappear.”

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