Poll: Base effects to slow Sept. inflation

By Luz Wendy T. Noble

INFLATION this month could turn out to be the slowest since mid-2016 due to “base effects” from the year-ago nine-year-high 6.7%, according to a poll of 16 economists, who also cited opposing pressures from oil price volatility after the Sept. 14 attack on Saudi oil facilities and lower pork prices amid the African swine fever (ASF) outbreak.

The poll bared an estimate median of 1.1% and a 1.28% average for September inflation, which the Philippine Statistics Authority will report on Oct. 4.

If realized, both median and average would mark September with the fourth straight month of easing.

The poll’s median and its average would also be the slowest since May 2016’s 0.9%.

The overall rise in prices of widely used goods clocked in at 1.7% in August — itself the slowest in nearly three years — and at a nine-year-high 6.7% in September last year that was sustained in October.

The Bangko Sentral ng Pilipinas (BSP) targets inflation to clock in at 2-4% in 2019 and 2020. In its latest policy review on Sept. 26, the central bank’s Monetary Board further trimmed its forecast average inflation for 2019 to 2.5% from 2.6%, and retained the 2.9% forecasts for 2020 and 2021.

In its July meeting, the interagency 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% annual projection for next year until 2022.

“Inflation likely to tank further to 1.1% mainly on base effects in the index heavy food basket. Supply-side pressures forced the 2018 inflation pop and, with these bottlenecks addressed, we’ve seen inflation decelerate rather quickly,” said ING Bank N.V. Manila Branch Senior Economist Nicholas Antonio T. Mapa.

ANZ Research Economist Mustafa Arif said in an e-mail that while hikes in food and fuel prices could have exerted upward inflation pressures from the preceding month, “high base effects will cause the annual rate to decline.”

Six analysts said upward pressures from the Sept. 14 attack on Saudi Aramco’s two processing facilities — which had immediately halved the kindom’s output and cut world production by five percent — should be manageable since production is expected to be fully restored early this week.

“Transportation made the biggest upward move due to the attack on the Saudi Aramco facility. But it will be temporary since the Saudis believe that they can bring it back to normal production by the end of this month,” University of Asia and the Pacific Senior Economist and professor Victor A. Ebola remarked, while Security Bank Corp. Chief Economist Robert Dan J. Roces said “… we do not see a repeat of the inflationary push similar to last year as production levels are slowly normalizing in Saudi Arabia.”

On the other hand, “[h]igher fuel prices are an important upward contributor, with higher global oil prices flowing through to the consumer,” Moody’s Analytics Economist Katrina Ell said, while Jonathan Ravelas, BDO Unibank, Inc. chief market strategist, said September inflation “could have been lower” amid opposing pressures from oil and pork prices.

“Demand for pork has slightly declined and consumers may have substituted [pork with] other meat products and have preferred other food items, resulting in an uptick of these particular alternatives’ annual percentage price increases,” UnionBank of the Philippines, Inc. Ruben Carlo O. Asuncion said.

For Rizal Commercial Banking Corp. Economist Michael L. Ricafort, “[a]s of this point, the adverse effects of the African Swine Fever on both hog production and pork prices remained negligible in terms of the effects on the country’s overall inflation and economic growth.”