DOF: As inflation slows, PH economy to make comeback in 2019

With inflation seen to ease and return within government target this year, economic growth is expected to “pick up steam” in 2019, according to the Department of Finance (DOF).

In a statement, the DOF said it was attributing expectations of a “marked slowdown” in headline inflation this year to the “prompt and decisive” measures undertaken by the economic team last year after the rate of increase in prices of basic commodities hit over nine-year highs.

“When inflation spiked in 2018 to above 6 percent starting in August, the Cabinet’s economic development cluster (EDC) led by Finance Secretary Carlos Dominguez III recommended a slew of measures that would help ease the impact of elevated inflation on consumers,” the DOF noted.

The measures cited by the DOF included easing of import procedures for food, agricultural and fishery products, while ensuring that rice supply was adequate to address supply bottlenecks that pushed prices up during that time.

“We responded decisively to the challenge posed by elevated inflation rates,” Dominguez said, such that “the government expects inflation to further slow down in 2019.”

“The cycle of elevated inflation has peaked and will subside over the next few months following the wide array of measures that the government has put in place to address the supply problems on rice and other food items,” Dominguez added.

The DOF expects economic growth to make a rebound this year, after gross domestic product (GDP) expansion slowed to three-year lows during the second and third quarters of last year partly due to high consumer prices.

The government targets 7-8 percent growth in 2019, even as the average end-September 2018 GDP growth of 6.3 percent remained below the 6.5-6.9 percent goal for last year.

The DOF cited that debt watcher S&P Global Ratings had forecast Philippine economic growth to improve to 6.4 percent in 2019 from a projected 6.2-percent expansion in 2018, albeit below the government target range.

The DOF also noted Nomura Global Research sees GDP growth at 7.1 percent this year from 6.3 percent last year. The Japanese financial giant likewise cut its inflation forecasts to 5.2 percent in 2018 from 5.4 percent previously as well as to 3.7 percent in 2019 from 4.4 percent.

Dominguez maintained the Tax Reform for Acceleration and Inclusion (TRAIN) Act, which imposed new taxes, only accounted for 0.4-0.7 percentage point of the inflation rate last year.

And even as the second tranche of oil excise increase took effect today (Jan. 1), inflation would continue to “trek a lower path” in the next two years, the DOF said, citing projections made by the Bangko Sentral ng Pilipinas (BSP).

As mandated under the TRAIN law, President Duterte in December gave his go-ahead to implement the scheduled higher fuel excise in 2019 as global crude prices slid in recent months.

To recall, when global prices touched $80 per barrel last October, the economic managers recommended to temporarily suspend the levy hike in the first quarter of 2019.

But the TRAIN law provided that the suspension can only be implemented when Dubai crude oil prices average $80 a barrel during a three-month period, which did not happen.

Per the law, an excise of P2.50 per liter was slapped on diesel and bunker fuel last year. This will go up to P4.50 in 2019 and P6 in 2020.

The excise on gasoline also increased from P4.35 per liter to P7 in 2018, and then to P9 this year and P10 in 2020.

“Recent headline inflation readings indicate signs of receding price pressures as constraints on food supply continue to ease with the implementation of various nonmonetary measures. Inflation expectations have also steadied given the decline in international crude oil prices and the stabilization of the peso,” the DOF quoted BSP Assistant Governor Francisco Dakila Jr. as saying.

Amid high inflation, the Monetary Board, BSP’s highest policymaking body, last year jacked up the key policy rate by 175 basis points to 4.75 percent.

The higher interest rates made it more expensive to borrow money, hence tempering consumer spending and business expansion among firms.