Inflation quickens anew in December but 2019 average within target

MANILA, Philippines (Update 2, 11:14 a.m.) — Price growth quickened further in December mainly fueled by higher transport costs and food prices, the Philippine Statistics Authority reported Tuesday, adding the government hit its inflation target for 2019.

Inflation in December accelerated to 2.5%, faster than 1.3% registered in November but slower than 5.1% recorded in the same month in 2018.

The December outturn was well-past market expectations and the fastest rate in six months. In 2019, inflation averaged 2.5%, settling within the state’s 2%-4% annual target.

According to the PSA, the food and non-alcoholic beverages index, which is a heavy item in the basket of goods used to compute inflation, jumped 1.7% last month while the transport index picked up by 2.2%.

“Recent typhoon damage has caused food prices to jump higher to close out the year,” said Nicholas Mapa, senior economist at ING Bank in Manila.

“Meanwhile, transport prices reversed from deflation... as domestic pump prices rose 17.1% on a year-on-year basis as crude oil prices normalized from the declines of 2018,” Mapa added.

In a statement, the Bangko Sentral ng Pilipinas — whose primary mandate is to ensure price stability — said the risks to the inflation outlook are on the upside for 2020 amid volatile world oil prices and impact of the African swine fever outbreak in the country.

But risks to inflation outlook are “tilted to the downside” in 2021 amid global trade uncertainties and geopolitical tensions abroad.  

“We expect inflation to edge higher in 2020 as ‘reverse’ base effects kick in, while the scheduled excise tax of fuel products takes effect later this month,” ING Bank’s Mapa said.

“The surprise inflation print in December should keep the BSP on alert as they gauge price developments going into 2020,” he added.

At their final meeting in 2019, the central bank kept its policy rate unchanged at 4%, citing “benign” inflation. — Ian Nicolas Cigaral