Inflation to ease back within target in Q1, economists say

MANILA, Philippines — Economists see year-to-date inflation easing within the two to four percent target of the Bangko Sentral ng Pilipinas (BSP) by the end of the first quarter due to easing food prices particularly rice.

ANZ research economist Sanjay Mathur said inflation would likely average within the central bank’s target range in the first quarter.

Inflation averaged 4.1 percent in the first two months after easing to 3.8 percent in February from 4.4 percent in January due to easing prices of food and other agricultural products.

The consumer price index has steadily declined in the past months after peaking at 6.7 percent in September and October.

Core inflation likewise softened to 3.9 percent in February from 4.4 percent in January, bringing the average to 4.2 percent in the first two months.

“The moderation in core inflation is encouraging. Not only does it support the BSP’s view that headline inflation will ease to below four percent by end of Q1 2019, it should also go some way in re-anchoring of inflation expectations,” Mathur said.

The  Monetary Board lifted rates in five straight rate-setting meetings from May to November last year to anchor inflation expectations.

Inflation accelerated to 5.2 percent last year from 2.9 percent in 2017 and exceeded the central bank’s target range due to elevated oil and food prices as well as weak peso.

“Even so, headline inflation should remain within the BSP’s target in the coming months. Against this backdrop, we expect the BSP to keep rates unchanged at its meeting on March 21,” he added.

Easing inflation has allowed authorities to pause its tightening cycle and keep interest rates steady in December and February to allow the economy to absorb last year’s rate hikes.

On the other hand, FocusEconomics economist Lindsey Ice said the Barcelona-based think tank has lowered its inflation forecast to four percent instead of 4.2 percent this year.

“February’s report was an encouraging sign that supply-side pressures, largely due to the Tax Reform for Acceleration and Inclusion law, seen in 2018 are finally abating following last year’s monetary tightening from the BSP,” Ice added.

For 2020, Ice said inflation is seen easing further to 3.7 percent.