2 inflation drivers seen in 2020: War jitters, swine flu outbreak

Prices of basic goods and services may rise at a faster pace this year as fuel could cost more amid war jitters in the Middle East and a local outbreak of African swine flu, the Bangko Sentral ng Pilipinas (BSP) warned on Tuesday (Jan. 7).

The warning came after the government announced that the inflation rate for December rose to 2.5 percent, bringing the full year average for 2019 to the same level but a substantial improvement from the 5.2-percent average inflation rate recorded in 2018.

According to the BSP, however, price escalation was likely to ease in 2021.

“The volatility in global oil prices and the potential impact of the African swine fever outbreak are the main upside risks to inflation,” the central bank said in a statement.

“Meanwhile, the impact of global trade and policy uncertainty as well as geopolitical tensions continue to be the main downside risks to inflation,” the BSP added.

The December inflation rate was driven by higher prices of electricity, petroleum products, selected food items, and other factors.

While policy makers had expected a rise in inflation by end of 2019, the market was nonetheless surprised by the result, which was closer to the higher end of the BSP’s 1.8 to 2.6 percent inflation forecast for December.

The BSP said local and foreign economic developments would be considered in the Monetary Board’s next steps.

Separately, the local economist of Dutch banking giant ING agreed that consumer prices will likely remain elevated, especially in the earlier part of 2020.

Nicholas Mapa, ING Bank Manila senior economist, said inflation would feel the impact of higher taxes on fuel products.

But he said inflation was expected to “bounce then settle” for the rest of 2020.

Inflation rate, Mapa added, could hover between 3.2 to 3.4 percent “should oil prices edge higher due to possible supply side disruptions”.

But despite the threat of higher prices, Mapa said he expected the BSP to cling to its monetary easing bias possibly until February’s Monetary Board meeting.

“We continue to believe that the BSP will have the scope to ease monetary policy further in 2020 with the first rate cut slated for the February meeting,” he said.

He added that the peso, meanwhile, could enjoy short-term strength.

Edited by TSB