Economic managers noted that slower price increases for transportation, food and non-alcoholic beverages softened annual inflation for the second straight month in December.

By Carmina Angelica V. Olano, Researcher
THE OVERALL year-on-year increase in prices of widely used goods eased for the second straight month in December by its slowest pace in seven months, the Philippine Statistics Authority reported on Friday, giving the central bank room to consider the impact of its next monetary policy moves on economic growth.
Headline inflation eased to 5.1% last month, marking the slowest pace since May’s 4.6% though still much faster than the year-ago 2.9%.
Inflation had picked up for nine straight months to a nine-year-high 6.7% in September that was sustained in October before dropping to six percent in November.
The latest inflation pace is lower than the 5.7% median in a BusinessWorld poll late last week and falls below the 5.2-6% estimate given by the Bangko Sentral ng Pilipinas (BSP) for last month.
Full-year inflation came in at 5.2% against the central bank’s 2-4% target range for 2018 and was the fastest in a decade, or since 2008’s 8.2%.
Stripping out volatile prices of energy and food, core inflation clocked 4.7% in December, slower than November’s 5.1%, fueling a 4.2% average for 2018.
COMPONENTS
In a press briefing on Friday, National Statistician Lisa Grace S. Bersales noted “slowdowns” in year-on-year price increases of food and non-alcoholic drinks which eased to 6.7% in December from eight percent in November as well as for transport — to four percent from 8.9%.
Food-alone inflation moderated across the board, except for the “other cereals, flour, cereal preparation, bread, pasta and other bakery products” category that picked up to 4.1% last month from 3.9% in November. Increases in rice prices slowed to six percent in December from 8.1% in November, while increments in fish prices slowed to 9.9% from 12.5%; meat, 5.5% from 6.3%; and vegetables, 8.1% from 11.5%.
Increases in transport costs similarly eased to four percent from November’s 8.9%.
Reflecting a reduction in price pressures was the monthly picture, with inflation rate dropping 0.59% in December, bigger than November’s 0.17% drop after successive month-on-month increases since 2018 began.
RISKS AHEAD
“Those are negative inflation rates that should tell us that, indeed, the supply-driven inflation process we saw in 2018 was not to be persistent and, therefore, short-lived,” BSP Deputy Governor and Officer-in-Charge Diwa C. Guinigundo said in a mobile phone message to reporters, citing the impact of the central bank’s five successive increases in benchmark inflation rates by a total of 175 basis points from May to November as well as the Executive branch’s non-monetary steps to remove food supply bottlenecks.
“With lower price movement, we could be optimistic about growth prospects and their positive feedback to inflation,” Mr. Guinigundo said, citing BSP forecasts of 3.2% and 3.0% for 2019 and 2020 inflation that will return overall prices increases to the central bank’s 2-4% target band.
“We shall continue to confront the issue of inflation with appropriate, vigilant stance of monetary policy in recognition of the remaining risks both here and abroad, without losing sight of the requirements of economic growth.”
The National Economic and Development Authority, the Department of Finance and the Department of Budget and Management noted in a joint statement that “[t]he rate of price increases has remained manageable, giving the country adequate elbow room to sustain its economic growth and reach its development goals”.
“Still, we understand that the faster inflation, particularly in the middle of 2018, had affected many Filipinos, most especially those in the disadvantaged sectors,” they said.
“While we can say that the worst seems to be over — given signs of easing price pressures — we continue to be vigilant of possible risks,” the departments added, saying that “[e]nsuring sufficient supply of rice and of other major agricultural products from local sources remains crucial… with the looming El Niño phenomenon in 2019.”
INFLATION STILL FASTER IN MANY REGIONS
In Metro Manila, inflation slowed to 4.8% last month from 5.6% in November, while overall price hikes similarly eased to 5.3% — still above the national rate — from 6.2% in areas outside the National Capital Region, PSA data showed further.
While PSA noted that the increases in prices of widely used goods slowed across much of the country, the rate was still above the national pace in 11 of the country’s 17 regions, namely: the Autonomous Region in Muslim Mindanao (7.5%), Ilocos Region (7.0%), Bicol Region (7.0%), MIMAROPA (6.7%), Zamboanga Peninsula (6.6%), Cagayan Valley (6.0%), Western Visayas (5.7%), Northern Mindanao (5.7%), SOCCSKARGEN (5.6%), Central Visayas (5.3%) and Davao Region (5.3%).
ANALYST EXPECTATIONS
For Michael L. Ricafort, economist at Rizal Commercial Banking Corp.(RCBC), “Inflation could ease/decline further in January 2019 to four-percent levels, despite the scheduled increase in fuel excise taxes of about P2 per liter for gasoline and diesel, partly due to sharply lower oil/fuel prices, easing of rice/food prices, relatively stronger peso.”
“[T]he higher base/denominator effects for inflation starting January 2019 (after TRAIN law took effect in January 2018) would result to lower year-on-year inflation rate in the coming months of 2019,” Mr. Ricafort added, referring to Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion Act (TRAIN), that slashed personal income tax rates but either increased or added taxes on a host of items when it took effect a year ago.
For Nicholas Antonio T. Mapa, senior economist at the ING Bank NV Manila, “[W]e will be revising lower our inflation outlook for both 2019 and 2020”.
“With more imported grains currently on delivery over the next few weeks, the rice tariffication bill set for signing and energy prices depressed, risks to the inflation outlook appear tilted to the downside and expectations now more anchored,” he added, referring to an impending law now for signing by President Rodrigo R. Duterte that will replace the current import quota scheme for rice with a regular tariff that, in turn, is expected to slash retail prices of the staple by P7 per kilogram and headline inflation by 0.7-0.8 percentage point.
“With the stars aligning for decelerating inflation, a more dovish Fed [in the face of mounting macroeconomic uncertainty for the United States] and possibly slowing growth momentum, the chances for a BSP two-pronged easing in the first half of 2019 has increased significantly.”
The BSP’s Monetary Board is scheduled to meet for its first policy review this year on Feb. 7.

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