Inflation expected to pick up

MANILA, Philippines – Inflation is expected to pick up this year but is likely to remain on target even as oil prices are on the rise, the chief economist of the Department of Finance said.

“The country’s inflation rate remains favorable,” Finance Undersecretary Gil Beltran said in an economic bulletin dated Jan. 5.

“In the foreseeable near-term, the general price increase may be above two percent as indicated by above two percent core inflation, an indicator of inflation outlook,” he said.

Inflation, as measured by consumer price index (CPI), averaged 1.8 percent in 2016, which Beltran said was the slowest in nearly three decades.

The result fell slightly below the official two- to four-percent target of the Bangko Sentral ng Pilipinas (BSP). The central bank kept that target range for this year.

While inflation for the entire last year fell below goal, there were actually signs it was picking up with the December result of 2.6 percent hitting a two-year high.

Beltran said this came on the back of lower global oil prices, which had since rebounded after major producers agreed to cut supply, as well as manageable food price increases.

Under the CPI, the two biggest contributors were food and energy prices. Food corners bulk of the basket of goods and services at 39 percent while energy accounts for 22.5 percent.

“For two consecutive years, the average inflation rate has fallen below two percent, largely on the back of lower fuel and energy prices,” the DOF official said.

“Stable rice prices also muted inflationary pressures,” he added.

Last month, the Organization of Petroleum Exporting Countries reached a deal to cut oil supply in a bid to manage falling oil prices that cut through their revenues.

This, in turn, helped push up local pump prices by P7.94 per liter for gasoline and P9.53 per liter for diesel as of end of last year, according to Department of Energy data.

The Philippines imports bulk of its oil requirements and had benefited from a slump in global commodity rates. While this may change this year, Beltran said better food production could serve as cushion.

“Food production is crucial to maintaining this favorable macroeconomic scenario. Support to production thru infrastructure development, credit availability and insurance coverage is necessary to sustain this,” he said.

In addition, he expressed confidence BSP has enough capacity to manage price increases.

“The BSP has built significant credibility in managing price expectations, aided by the newly implemented interest rate corridor system that will make its operations more efficient,” Beltran said.

“This and the government’s prudent fiscal management will continue to help maintain macro-economic stability in the country, which in turn fosters a conducive environment for generating investments,” he said.