Inflation eases to 3.3% in November

MANILA, Philippines — The slower pace of price hikes in food brought down inflation to 3.3 percent in November, halting a four-month uptrend that led to a three-year-high 3.5 percent in October.

The Philippine Statistics Authority reported yesterday that the slower growth in the consumer price index last month was mainly attributed to lower food prices during the period.

At the same time, the Bangko Sentral ng Pilipinas (BSP) said the slowdown in inflation gives it more leeway to keep a loose monetary policy stance to accommodate the expanding economy at least until the end of the year.

Socioeconomic Planning Secretary Ernesto Pernia said the inflation growth in the 11-month period indicates the rise in the prices of consumer goods remain within the projected range of two to four percent for this year.

“This already considers expected price spikes owing to holiday season spending this December,” he said.

In November, inflation for food and non-alcoholic beverages eased to 3.2 percent from 3.6 percent in October, the lowest since October 2016. This was attributed to lower prices of vegetables, sugar, jam, honey, chocolate and confectionery, fruits, oils and fats, and rice.

Prices for the usually more expensive vegetables such as ampalaya, cabbage, carrots, tomato, white potato and imported garlic have gone down in the National Capital Region (NCR).

“This signifies that supply is starting to stabilize again,” said Pernia.

BSP Governor Nestor Espenilla Jr. said the consumer price index is likely to fall within the two to four percent target growth for this year after averaging 3.2 percent from January to November.

“The easing of inflation in November was expected, following October peak. We’re still on track with the 3.2 percent inflation (target) for 2017, just about the mid-point of the target range,” the BSP chief said.

Last Nov. 9, the BSP’s Monetary Board retained its inflation forecast at 3.2 percent for 2017 but raised next year’s projection to 3.4 percent due to rising oil prices, the depreciation of the peso against the US dollar, and geopolitical tensions.

Nomura Securities economist Euben Paracuelles, said the Monetary Board may hike rates earlier next year instead of the projected increase in the second half due to upside risks in inflation.

“As such, we continue to see rising risks that our policy rate forecast of two 25-basis point hikes in H2 2018 may be delivered earlier in the year,” he said.

Paracuelles said he sees inflation averaging 3.9 percent next year from the projected 3.2 percent this year due to higher oil prices and robust domestic demand.

“While some of these price pressures in 2018 are driven by supply-side factors, particularly oil and tax reform adjustments, we believe it will be difficult for BSP to look through the resultant inflation risks with growth persistently coming in above potential, which could push core inflation higher, as well as rising concerns of overheating,” he said.

ING Bank Manila senior economist Joey Cuyegkeng said the price moderation in November gives BSP the leeway to keep policy settings steady at its Dec.14 policy rate meeting due to moderate and within-target inflation expectation.

He pointed out seasonal demand would likely push inflation mildly higher to 3.4 percent to 3.5 percent this month. Upside risk to inflation remains with the Asian benchmark price of crude oil hovering around the high $50 to $60 per barrel area and possibly higher commodity prices.

He added the likely implementation of the Philippine tax reform measure in the first quarter would also exert some upward pressure on inflation.

“We anticipate the first tightening move of BSP in Q2 2018. We remain cautious and expect average inflation in 2018 closer to the upper end of the range at 3.7 percent to 3.8 percent,” Cuyegkeng said.

ANZ Bank economist Eugenia Victorino said inflation is seen averaging in the upper half of the central bank’s two percent to four percent range through 2018 with the passage of the comprehensive tax reform program that could raise transport and energy costs as well as food prices.

“We stand by our view that tighter credit conditions are called for and still expect policy rate hikes to commence in Q1 2018,” she said.

Robust domestic demand and the benign inflation environment have allowed the Monetary Board to keep interest rates unchanged since September 2014.

The steady and stable interest rate has been accommodative to businesses, allowing them to borrow at lower costs to fund their expansion activities amid the expanding economy.