Price increases seen to have picked up

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Posted on April 03, 2016 10:49:00 PM

By Melissa Luz T. Lopez, Reporter

INFLATION likely picked up slightly last month as higher oil prices and effects of the ongoing dry spell pushed some food costs up, analysts polled by BusinessWorld said, but the full-year print is expected to tread the low end of the central bank’s target.

A poll among 13 economists late last week yielded a median inflation estimate of 1.1%, slightly above February’s 0.9% but below the 2.4% recorded a year ago and January’s 1.3%. The estimate also falls within the 0.6-1.4% range seen by the Bangko Sentral ng Pilipinas (BSP) and matches the forecast of Finance Undersecretary Gil S. Beltran, the department’s chief economist.

With even the top end of the central bank’s estimate, average inflation in the first quarter would fall below BSP’s downward-adjusted 2.1% forecast for 2016.

The Philippine Statistics Authority is scheduled to release official March inflation data tomorrow. Inflation averaged 1.1% as of end-February.

A recovery in oil pump prices probably fueled a slight pickup in commodity prices in March, the analysts said, alongside higher costs of some staple food items.

“Our forecast for March is 1.1% based on higher prices of oil and food, especially rice,” Ildemarc C. Bautista, assistant vice-president and head of research at the Metropolitan Bank & Trust Co., said in an e-mail.

Emmanuel A. Leyco, public finance expert at the Asian Institute of Management, also said March inflation could go faster than the February print due to “continuing impact” of a severe El Niño episode, particularly on southern Philippines.

“Vegetable and fruit prices declined in line with seasonal price patterns in summer. However, prices of some food items have started to rise like onions and sugar. Local media has been reporting of low harvests on the back of El Niño phenomenon,” said Eugenia Fabon Victorino, economist at ANZ Research.

However, analysts noted that downward adjustments made in transport fares and power tariffs last month likely offset higher fuel prices. “Lower electricity rates and transport fares, along with stable food prices, are seen to offset increases in retail prices of fuel in the past few weeks,” said Remrick E. Patagan, research director at the Institute for Development and Econometric Analysis, Inc. “Our current forecasts indicate that headline inflation may once again settle below the central bank’s target range this 2016, if the downside factors continue to outweigh the upside risks for the rest of the year.”

Nicholas Antonio T. Mapa, research officer at the Bank of the Philippine Islands (BPI), also said that stable costs of cooking oil, slower food inflation as well as lower housing and utility charges point to a minimal rise in commodity prices last month.

The peso’s appreciation against the dollar also kept a lid on inflation, added Jingyi Pan, research analyst at the Singapore-based Forecast Pte. Ltd.

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Looking ahead, the analysts believe inflation could trend faster in the months ahead and would likely log closer to the low end of BSP’s 2-4% target band for 2016.

“Moving forward, we still see the possibility of the inflation rate rising to the 2-4% target range, though the average may settle at the lower end -- around 2.1-2.2%,” Ms. Pan said.

“The high base effect continue to diminish into the year while the upside risks remains from the El Niño.”

Nomura economist Euben Paracuelles also expects inflation “to trend higher” as world oil prices sustain its recovery, giving a full-year forecast of 2.4%. “Inflation is likely to trend higher given strong domestic demand and base effects from oil prices becoming less favorable. If anything, with crude oil prices now above our assumption of $30-$35/barrel and persistence of El Niño, we see some upside risks to that trajectory,” Mr. Paracuelles said.

Central bank officials have said that they expect inflation to creep up in the coming months and record an average of 2-4% for 2016 with a 2.1% forecast, rising from a below-target rate of 1.4% in 2015.

Relatively muted inflation in the first three months should allow BSP to keep monetary policy settings steady in the near term, economists said.

“The below-target inflation will see full-year inflation edge even closer to the lower end of the 2016 target although the BSP remains wary to ease monetary policy given the very potent consumption and investment momentum, wary not to foment nascent inflationary pressures in the economy,” BPI’s Mr. Mapa said.

“Inflation remains very depressed due to supply conditions and perhaps also to the composition of the basket.”

Jeff Ng, analyst at Standard Chartered bank, added: “Benign inflation should allow Bangko Sentral ng Pilipinas to maintain its monetary policy stance until it introduces the interest rate corridor in Q2 this year.”

The central bank maintained policy rates during its March 23 review, citing buoyant domestic demand, robust economic growth, and manageable inflation.

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