Nov. poll puts inflation on track to target

By Elijah Joseph C. Tubayan
Reporter

THE OVERALL RISE in prices of widely used goods and services could have eased in November as a stronger peso softened import costs, according to analysts polled last week who said this should leave room for the central bank to steady its policy stance till yearend.

A poll among 13 economists saw a headline inflation estimate median of 3.2% for November, which if realized would be slower than October’s nearly three-year-high 3.5% but faster than the year-ago’s 2.5% pace.

The median matches the estimate released last Friday by the Department of Finance and approximates the midpoint of the Bangko Sentral ng Pilipinas’ (BSP) own 2.9-3.6% range announced earlier last week.

The Philippine Statistics Authority is scheduled to report official inflation data on Tuesday.

In an e-mailed response to queries, Land Bank of the Philippines market economist Guian Angelo S. Dumalagan said headline inflation’s expected slowdown in November was “fueled by the unexpected appreciation of the peso and a tamer increase in food prices.”

“The peso strengthened this month, tempering the rise in the costs of imported products,” Mr. Dumalagan said, citing investor concern over the fate at that time of planned US corporate tax cuts as well as generally better weather that softened food price increases.

Still, Union Bank of the Philippines chief economist Ruben Carlo O. Asuncion said that anticipation of stronger consumer demand with the approach of Christmas as well as continued recovery of global oil prices sustained price pressures.

ANZ Research economist Eugenia Fabon Victorino blamed the continued climb of electricity rates, particularly of the Manila Electric Co. which is the country’s biggest electricity distributor.

Actual headline inflation has so far averaged 3.2% in the 10 months to October, matching the central bank’s 3.2% full-year forecast and hovering just above the midpoint of its 2-4% target band for 2017.

“We expect inflation to average 3.2% for the full year, with no expected change in the BSP policy rates for now and the near future,” Ildemarc C. Bautista, vice-president and head of research at Metropolitan Bank & Trust Co., said via e-mail.

For Security Bank Corp. economist Angelo B. Taningco, “I still think BSP will keep its key interest rates unchanged by December as inflation risk appears to have waned and peso appreciated vis-à-vis the US dollar.”

Still, Mr. Dumalagan said a tightening bias worldwide may soon force the BSP to adjust its own policy settings.

“While the slowdown in domestic inflation favors steady policy settings, rising global interest rates may require some preemptive tightening moves from the BSP, as widening interest rate differentials may result in unwanted volatility in domestic financial markets,” he said.

Two economists polled last week said they expect a rate hike from the BSP in 2018’s opening quarter, citing quickening credit growth and the expected impact of the first package of the government’s comprehensive tax reform program that has hurdled both chambers of Congress and is targeted to take effect in January.

The BSP’s Monetary Board on Nov. 15 maintained interest rates, which have steadied since September 2014 save for procedural adjustments in June 2016 to usher in an interest rate corridor system designed to better siphon unwanted liquidity and influence market rates. The board is scheduled to meet for the last time this year on Dec. 13 — 2017’s eighth policy review.