BSP sees inflation uptick in January due to higher excise taxes

Prices of basic goods and services will likely move higher in January due to higher food prices, aggravated by higher excise taxes on tobacco products, the central bank said on Friday.

In a press statement, economists of the Bangko Sentral ng Pilipinas (BSP) said they expected the inflation rate in the first month of 2020 to have risen between 2.5 and 3.3 percent.

“Higher prices of LPG and selected food items as well as adjustments in the excise taxes on tobacco products are the primary sources of upward price pressures for the month,” the BSP’s Department of Economic Research said.

At the same time, however, inflation could be tempered by lower electricity rates in Meralco serviced-areas and rollbacks in fuel prices during the month.

Earlier, the central bank said it expected prices of basic goods and services in the Philippines to inch up in 2020 as the inflation rate continued to “normalize” then ease up in 2021.

Despite this, the country’s average inflation rate for 2020 and 2021 will almost certainly fall within the government’s forecast range of 2-4 percentage points, according to BSP Governor Benjamin Diokno.

Diokno said the likely inflation drivers were “volatility in international oil prices and geopolitical tensions in the Middle East.” The December 2019 inflation rate came in at 2.5 percent, which brought the average inflation rate for the entire year to 2.5 percent, well within the national government’s announced target range of 3 percent, plus or minus 1 percentage point, for 2019.

Some analysts expect the central bank’s Monetary Board to cut interest rates as early as its first meeting on Feb. 6 in an effort to jump-start economic activity following the 5.9 percent gross domestic product growth rate for 2019.

At present, the central bank’s key interest rate—which banks use as a guide for their own commercial loan pricing—stands at 4 percent.