BSP: Oil price volatility, swine fever woes may push up inflation in 2020

Prices of basic goods and services may start trekking higher again next year—although most likely at a less aggressive pace than the 2018 spike—due to a confluence of international and domestic challenges, the central bank said on Friday.

In a briefing, Bangko Sentral ng Pilipinas Governor Benjamin Diokno warned that inflation rate forecasts for 2020 had turned less rosy due to near term “volatility in global oil prices and the potential impact of the African Swine Fever outbreak on domestic food prices.”

“The balance of risks to the inflation outlook has shifted toward the upside for 2020, while it continued to tilt to the downside for 2021,” he said, even as he stressed that monetary planners continued to expect the consumer price index to settle “within the lower half of the inflation target range of 3 percent, plus or minus 1 percentage point in 2019-2022.

The latest national inflation rate stood at 0.9 percent as reported in September, which matched the pace of price increases last recorded in May 2016, and brought the year-to-date average to only 2.8 percent. The BSP warned, however, that a slight uptick might be forthcoming during the holiday season when higher consumer spending was expected to push prices higher.

Volatile crude oil prices in the world market caused by tensions in the Middle East have also caused some local economists to warn that the current low inflation environment might start moving upward in the coming months.

This has been aggravated by an outbreak of the African Swine Fever disease in the local hog industry which could push up pork prices in the marketplace. Regulators have downplayed their threat, however, saying there are many meat substitutes for pork which also carries only a small weight in the inflation measuring basket.

Nonetheless, the central bank chief noted that the lower inflation rate in the third quarter pointed to a continued easing in demand-side price pressures. Accordingly, the results of the BSP’s latest survey of private sector economists in September 2019 showed generally lower and within-target inflation expectations for 2019 up to 2021, he said.

Diokno also pointed out that the Philippine economy expanded at a slightly slower pace in the second quarter of 2019 relative to the previous quarter.

Domestic private consumption was the primary growth driver during the quarter, with exports and government spending also contributing to GDP growth. On the other hand, capital formation contracted due mainly to the budget impasse and to the mid-term election ban on public spending.

“Nevertheless, we expect growth to remain robust in the coming months as the national government continues to ramp up its spending programs,” he said. “Moreover, higher-frequency demand indicators point to an overall positive outlook for the domestic economy.”