By Melissa Luz T. Lopez
Senior Reporter
INFLATION likely slowed sharply in December to a six-month low, in line with official expectations that overall price increases of basic goods will return to below four percent in 2019, according to a Moody’s Analytics economist.
The economist, Katrina Ell, said inflation likely slowed for the second straight month to 5.5%. If realized, this would slide further from the six percent recorded in November and would be the lowest since June’s 5.2%, but would still be faster than the 2.9% pace in December 2017.
“We expect December inflation cooled to 5.5% year-on-year in December from November’s six percent,” Ms. Ell said via e-mail.
“By the second half of 2019, we forecast inflation to return to the central bank’s 2-4% target range.”
The Philippine Statistics Authority will report December inflation data on Jan. 4, 2019.
Inflation has averaged 5.2% from January-November, matching the full-year forecast of the Bangko Sentral ng Pilipinas (BSP) but remains well above the government’s 2-4% target band.
Central bank officials chose to keep interest rates steady during their Dec. 13 meeting as they now expect prices of widely used basic goods to trek a “lower path” over the next two years. Inflation expectations have also steadied as world crude prices have dropped, food prices have returned to normal and the peso has stabilized, according to BSP Assistant Governor Francisco G. Dakila, Jr.
Prior to this, the BSP fired off five consecutive rate increases since May, with two consecutive hikes worth 50 basis points (bps) launched in August and September as inflation surged to the highest level in nearly a decade.
Benchmark interest rates have risen by a total of 175 bps this year, with the key policy rate now at 4.75% which is the highest in nine years. The adjustments are meant to cool inflation expectations and take headline inflation back on target in 2019.
The central bank expects inflation to drop below four percent “around the end of the first quarter” of next year, while the full-year pace for 2018 is seen averaging 3.2%.
A number of bank analysts have said that the BSP can finally end its monetary tightening cycle with inflation becoming less of a problem as the overall rate of price increases is now expected to drop “quite rapidly” given a high base effect and the fading impact of tax reforms and typhoons which disrupted crop production and supply this semester.
Other economists are betting that the BSP can resume cuts in bank reserves and eventually trim benchmark rates following this year’s aggressive policy increases.
The Monetary Board’s next rate-setting meeting — the first for 2019 — is scheduled on Feb. 7.

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