Inflation seen to pick up in January

MANILA, Philippines — Inflation likely further picked up in January compared to previous months as higher “sin” and oil excise tax rates kicked in on top of the eruption of Taal Volcano that spurred price increases of basic goods in Calabarzon (Cavite, Laguna, Batangas, Rizal, and Quezon) region.

The 14 economists who responded to the Inquirer’s poll last week had a wide range of headline inflation forecasts for January, with a low of 2.2 percent year-on-year and a high of 3.1 percent, even as the majority of projections were higher than the 2.5 percent registered in December.

The government will release January inflation data on Wednesday, Feb. 5.

Last week, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said Taal Volcano’s eruption last month “could also exert some upside pressures on inflation because of the impact of the eruption on the supply of food items like coffee, cacao, pineapple, assorted fruits and vegetables, rice, and coconut” as well as fish caught in the Taal Lake.

“As with prior episodes of volcanic eruptions in the country, inflation could show a slight uptick in the coming months. Nevertheless, the increase is likely to be temporary, with price pressures easing in the following months,” Diokno said.

Among private economists, Capital Economics’ Alex Holmes and UnionBank’s Ruben Carlo O. Asuncion shared the lowest January forecast of 2.2 percent.

Asuncion mainly attributed his projection to “lower global oil prices, consequently pushing domestic fuel distributors to cut fuel prices, and the downward adjustment of electricity prices by the Manila Electric Co. (Meralco),” while Holmes said the impact of the two typhoons that battered the country in December, which pushed prices up that month, had already faded.

University of Asia and the Pacific’s Victor A. Abola’s forecast was 2.5 percent, pointing out that “Meralco rates in January fell by 4.2 percent month-on-month, while crude oil prices starting plunging by mid-January.”

BDO Unibank’s Jonathan L. Ravelas projected 2.6 percent

HSBC’s Noelan Arbis, Oxford Economics’ Thatchinamoorthy Krshnan and Sun Life Financial’s Patrick M. Ella said headline inflation likely rose 2.7 percent year-on-year last January as Ella pointed to “mild gains in the food, utilities and transport baskets.”

“The base effects that caused inflation to pick up in December should continue to affect January 2020 inflation but to a smaller extent,” Krshnan, for his part, said.

For ANZ Research’s Mustafa Arif, Bank of the Philippine Islands’ Emilio S. Neri, and Rizal Commercial Banking Corp.’s Michael L. Ricafort, the January rate was 2.8 percent as Arif said “food prices will likely be higher sequentially due to inclement weather.”

“LPG price uptick and slight rise in food likely outweighed the drop in electricity prices,” Neri explained.

Ricafort said the inflation rate last month “could continue to normalize higher (from unusually low levels), mathematically due to the continued easing of inflation base/denominator effects.”

ING Bank’s Nicholas Antonio T. Mapa and Security Bank’s Robert Dan J. Roces both see last month’s inflation at 2.9 percent.

Mapa noted that “January saw higher prices for select meat items (beef, chicken, galunggong (round scad) and alumahan (Indian mackerel) while others were lower (pork, bangus (milkfish)  and tilapia),” while Roces said, “the significant drop in rice prices may be offset by upticks in fish and vegetables.”

University of the Philippines-Los Baños’ Agham C. Cuevas had the highest forecast of 3.1 percent “owing higher food prices and inflationary effects of expectations due the anticipated cut in interest rates to stimulate growth.”

As for FocusEconomics’ Lindsay Ice, full-year 2020 inflation would likely settle at 2.9 percent, “supported by demand-side pressures and hikes in excise taxes on certain products including alcohol and tobacco.”

Edited by MUF