Inflation’s upward crawl in January pushed by costlier food, more taxes on tobacco, says BSP

Higher food prices and costlier tobacco products as a result of more taxes were likely to drive inflation upward in January, according to the Bangko Sentral ng Pilipinas (BSP) on Friday (Jan. 31).

In a press statement, economists of the BSP said they expected inflation rate in the first month of 2020 to fall in the range of 2.5 to 3.3 percent.

The primary sources of upward inflation, according to the BSP’s Department of Economic Research, would be higher prices of liquefied petroleum gas (LPG) and selected food items and increases in taxes on tobacco products. LPG is the most commonly used cooking fuel in the country.

The BSP researchers, however, said inflation would be tempered by declines in electricity rates and rollbacks in fuel prices in January.

The central bank earlier said it expected prices of basic goods and services to crawl upward in 2020 as inflation rate continued to “normalize” on its way to easing up again in 2021.

BSP Governor Benjamin Diokno said despite this, the Philippines’ average inflation rate for 2020 and 2021 will almost certainly settle at a range of 2-4 percentage points, the government’s forecast.

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 average inflation rate for the entire 2019 to 2.5 percent, well within the national government’s forecast of 3 percent.

Some analysts expected the central bank’s Monetary Board to cut interest rates as early as their first meeting on Feb. 6, in an effort to
jumpstart economic activity, following the 5.9 percent gross domestic product growth rate for 2019, which was below expectations.

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.

Edited by TSB