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Central bank expects March inflation sustained above 3%

Posted on March 28, 2017

INFLATION likely stayed above three percent this month as higher power rates and a weaker peso pushed prices of widely used goods and services upward, although lower food and oil costs may have capped the overall increase, the Bangko Sentral ng Pilipinas (BSP) said yesterday.

RICE from Vietnam is unloaded at the port of Manila in this July 5, 2007 file photo. Rice accounts for nearly nine percent of the consumer price index. -- AFP
BSP Governor Amando M. Tetangco, Jr. said inflation could clock 3-3.8% this month, roughly the same level as February’s 3.3% but faster than the 1.1% clocked in March 2016.

The resulting 3-3.27% estimate range for the first three months falls within the central bank’s 2-4% target band for the entire year.

February’s pace was the fastest since a 3.7% inflation rate logged in November 2014, pulling the two-month average to three percent, while the top end of the BSP’s March estimate range would be the fastest since October 2014’s 4.3%.

The Philippine Statistics Authority is scheduled to report the official March inflation data on April 5.

“The higher power rates in Meralco-serviced areas due to the Malampaya [natural gas field] maintenance shutdown along with the weaker peso could be partially offset by the decline in fuel and food prices this month,” Mr. Tetangco said in a text message to reporters.

Manila Electric Co. (Meralco), the country’s biggest power distributor, announced that its base rate rose by 67 centavos this month on higher generation charges due to the regular maintenance shutdown of the Malampaya facility. Malampaya’s Jan. 28-Feb. 16 shutdown prompted power plants that run on natural gas to temporarily use more expensive fuel. The climb to a P9.67 per kilowatt-hour (kWh) base rate included the first of three equal monthly rate increase installments of P0.2211/kWh approved by the Energy Regulatory Commission on March 6. Subsequent increases will be included in Meralco customers’ April and May electricity bills.

This month also saw the peso continuing to trade weaker than P50 against the dollar, reflecting market expectations that the United States Federal Reserve would raise rates anew in its March 14-15 meeting.

At the same time, retail pump prices went down this month as world crude prices have remained subdued amid doubts that the production cuts agreed on late last year by both Organization of Petroleum Exporting Countries members and non-members -- totaling 1.7 billion barrels per day (bpd) to 1.8 billion bpd within this semester -- have eased a global supply glut.

Lower food prices are also expected to have offset the impact of higher power rates this month, Mr. Tetangco added.

The central bank trimmed its inflation forecast for the full year to 3.4% from 3.5% in last week’s monetary policy review, reflecting movements in domestic and world crude prices and amid expectations of slower money supply growth.

The BSP also expects 2018 inflation to average lower at three percent, which prices in the “staggered” implementation of a tax reform plan proposed by the Finance department that now awaits approval by Congress. Policy makers expect the law passed by the fourth quarter.

The looming expiry of rice import restrictions in July -- resulting in a lower 35% tariff applied to all inbound shipments -- is expected to have a “beneficial” impact on prices moving forward, BSP Deputy Gov. Diwa Guinigundo also said last week, noting that this grain staple accounts for 8.9% of the theoretical basket of goods and services widely used by a typical household and on which inflation computations are based.

Looking ahead, Mr. Tetangco said the BSP will “remain watchful of economic and financial developments that could affect the inflation outlook,” in keeping with the central bank’s mandate of maintaining price stability.

The Monetary Board kept policy settings steady in its Thursday meeting, dismissing the need for fresh monetary support over the near term in the face of buoyant domestic activity and manageable inflation.

The economy is broadly seen on track to expand 6.5-7.5% this year, with Socioeconomic Planning Secretary Ernesto M. Pernia saying first-quarter growth likely scraped at least 6.5-7% on the back of robust consumption and increased infrastructure spending. -- Melissa Luz T. Lopez