Poll bares view of even slower inflation

By Mark T. Amoguis
Senior Researcher

THE GENERAL INCREASE in prices of goods and services used by average Filipinos is expected to have cooled further last month amid slowing food prices as well as base effects.

A poll of 12 economists yielded a median inflation estimate of 1.8% for August, settling above the midpoint of the 1.3-2.1% range given last Friday by the Bangko Sentral ng Pilipinas’ Department of Economic Research for that month.

If realized, this would mark the third straight month of slower inflation from June’s 2.7%.

It also compares to July’s 2.4% and 6.4% in August last year.

The estimate matches October 2016’s 1.8% and would be the lowest reading in 35 months or since the 1.7% recorded in September that year.

The Philippine Statistics Authority (PSA) is scheduled to report August inflation data on Sept. 5.

“We should expect the base-year effect to have a large role to play in the year-on-year change for CPI (consumer price index),” Sun Life Financial economist Patrick M. Ella said.

“Weekly data suggest a sharp decline in fuel price inflation on the back of lower global oil prices. Meanwhile, rice price inflation is likely to have turned more deeply negative as last year’s big price spikes entered the annual comparison,” Capital Economics Asia economist Alex Holmes said.

Moody’s Analytics expects inflation to have posted 2.11% in the July-September period and to clock in at 2.2% in the fourth quarter. “The reason for this figure is the large deceleration in rice prices following the rice tarrification law. Electricity prices continue to fall as well. A stronger peso is slowing inflation [by] helping to lower cost of imports. Base effects will also play a role in slowing inflation,” said Brady J. Seitz, associate economist at Moody’s Analytics.

Latest data from the PSA show average retail price of well-milled rice dropped 7.3% year-on-year in the first and second weeks of August, reaching P42.71 per kilogram (/kg) at the end of that period.

Average retail price of regular milled rice fell 9.2% and 9.8% in August’s first and second weeks, respectively, settling at P42.57/kg at the end of that period.

Manila Electric Co.’s (Meralco) power rates for households in the National Capital Region and surrounding areas dropped for the fourth straight month in August by P0.4176 per kilowatt-hour (/kWh) to P9.5674/kWh.

This represented a decrease of almost P1/kWh since May this year, according to Meralco.

The Department of Energy said on Aug. 27 that most oil companies slashed pump prices by P0.10 per liter for both gasoline and diesel, although kerosene prices went up by P0.10 per liter.

These brought year-to-date net increases per liter of gasoline, diesel and kerosene to P4.75, P3.35 and P1.40, respectively.

In its Aug. 8 policy review, the BSP revised forecast inflation this year to 2.6% from an already downward-adjusted 2.7% that was adopted in its June 20 meeting, while it slashed next year’s forecast to 2.9% from three percent previously.

The central bank targets inflation to range 2-4% this year and next.

In its July meeting, the Development Budget Coordination Committee also adjusted its inflation projection this year to 2.7-3.5% from 3-4% previously, but maintained the 2-4% projection for next year until 2022.

Analysts interviewed for this poll said that inflation rate could even go lower in the coming months as base effects persist.

Inflation hit successive multi-year highs to a nine-year peak of 6.7% in September and October 2018, forcing the central bank to hike benchmark rates by a cumulative 175 basis points (bps).

The BSP has started to wind down these aggressive policy moves by cutting policy rates by a total of 50 bps so far, and has signaled a 25-bps cut towards yearend.

“I do see headline inflation going below 1.5% by September due especially to the high base a year ago,” University of Asia and the Pacific professor Victor A. Abola said.

“[B]ecause of base effects and anticipated consumption factors in the coming months, we might see inflation levels at sub-2% until November 2019,” Security Bank Corp. chief economist Robert Dan J. Roces said.

“The rapid deceleration in prices shows how quickly inflation fades if price pressures emanate from the supply side, further evidence that the heavy-handed 2018 rate hike cycle can and should be dialed back sooner rather than later to limit its adverse impact on growth now that the inflation specter has been tamed for the time being,” ING Bank NV Manila Branch senior economist Nicholas Antonio T. Mapa said.

“Inflation will continue to experience a downward trend in the third quarter but may pick up again due to seasonal demand for certain products, weather and oil shocks,” said Mitzie Irene P. Conchada, associate dean of De La Salle University School of Economics.