2019 inflation seen tempered by lower food, fuel prices to 2.5%

The country’s inflation rate likely averaged 2.5 percent in 2019, tempered by softer fuel and food prices versus the inflation scare that spooked the financial markets in the previous year, economists said.

The full-year inflation average this year is seen to ease from 5.2 percent in 2018, giving leeway for the Bangko Sentral ng Pilipinas (BSP) to continue its dovish stance in 2020, BDO Unibank chief strategist Jonathan Ravelas said in a research note.“Consumer prices are well anchored once again and is forecast at 3 percent in 2020, within the BSP target of 2 to 4 percent in its medium-term development plan,” Ravelas said.

In the 11 months to November, the country’s inflation rate averaged 2.5 percent.

Benign inflation can open the window for the BSP to cut its overnight borrowing rate by 50 basis points to 3.5 percent in the year ahead.

In addition, Ravelas said monetary authorities could reduce the required reserve requirement on banks by 2 percentage points from 14 percent to 12 percent.

“These twin moves from the BSP could result in a steeper yield curve with short-term rates falling further while the 10-year treasury note could move toward 5.5 percent,” he said. In a separate research note, Security Bank economist Robert Dan Roces said the Philippine inflation rate likely rose to 2 percent year-on-year in December from 1.3 percent in November. For full-year 2019, Security Bank also expects inflation—the rate of increase in consumer prices based on the basket of goods typically consumed by local households—to average 2.5 percent.

Last year, the inflation rate surged to 5.2 percent due to skyrocketing rice and oil prices.For December 2019, Roces said month-on-month price growth likely remained at 0.2 percent, or a steady price growth trajectory “amid higher demand for select commodities during the holiday season, plus electricity and fuel price changes.”

“We see an uptick in prices for selected food items as well as alcoholic beverages and tobacco, and upward price adjustments in electricity rates plus uptrends in diesel, gasoline and kerosene prices,” he said.On the other hand, Roces said the increase in electricity rates might be due to higher generation charge.

“Rice prices have been relatively stable with the fulfillment of shipments for imported rice, plus the end of the harvest season that ensures more than enough supply in the market,” he added.

With this outlook in December, this was expected to be the second month in a row that the inflation rate likely picked up pace. The inflation rate had decelerated for five consecutive months from June to October this year, before rising in November.