BANK ECONOMISTS broadly expect inflation to settle above four percent this year as new taxes, a weaker peso and rising oil prices drive up the cost of basic goods and services, the central bank said.
The latest survey conducted by the Bangko Sentral ng Pilipinas (BSP) among private bank economists showed a 4.1% mean inflation forecast, using the 2012-based consumer price index (CPI), which if realized would breach the government’s 2-4% target band.
More than half of the economists were of the view that inflation will range from 4.1% to five percent for 2018, while around 40.3% said that the full-year print will be within target.
Using the 2006-based CPI, the bank analysts expect a 4.4% rate for the entire year, surging from the 3.6% average which they gave in the previous poll conducted in December. Broken down, inflation is seen averaging 4.5% during the second quarter and will pick up to 4.6% by the third quarter.
Inflation accelerated to 4.3% in March, using the 2012-based CPI, led by a surge in the prices of cigarettes, alcohol products and rice, according to the Philippine Statistics Authority. This is the fastest price pickup seen in at least five years which brought the three-month average to 3.8%.
The BSP expects 2018 inflation to average 3.9% under the new base, or 4.5% when computed using 2006 prices.
The analysts echoed the BSP’s view that commodity prices are likely to keep rising this year, with the Tax Reform for Acceleration and Inclusion (TRAIN) law seen as the main culprit for faster price increases.
Starting Jan. 1, TRAIN imposed an additional P2.50 excise tax per liter of diesel and P3/liter for kerosene, which came at a time of three-year highs for world crude prices. The new law also introduced additional taxes on cars, coal, sugar-sweetened drinks and a host of other items that likely drove up inflation.
The new tax law is also expected to elicit petitions for higher wages and transport fares, which could drive up inflation further once approved by regulators.
Other reasons cited by the economists include volatile global oil prices, rising utility rates and bigger government spending on infrastructure.
A possible rate hike in the United States coupled with a weaker peso and the 100-basis point reduction in reserve requirements imposed on local banks have also been flagged as potential inflation drivers.
At the same time, the government’s conditional cash transfers for the poor, transport subsidies and shift to a regular tariff scheme for rice are seen to temper upward price movements.
The analyst poll gave a mean forecast of 3.7% for 2019, using the 2012-based CPI, versus the BSP’s three percent estimate.
“Meanwhile, inflation is anticipated to moderate, stabilize and settle within the 2-4% target range in 2019 to 2020 as TRAIN’s inflationary impact tapers off,” the BSP said in its quarterly report published on Friday.
BSP Governor Nestor A. Espenilla, Jr. has acknowledged that inflation will accelerate within 2018, but noted that prices “will come down soon enough.”
He has said the central bank stands ready to tighten rates should inflation spread beyond basic goods and services. — Melissa Luz T. Lopez