BSP forecasts 4%-4.8% inflation rate for February

Published March 1, 2018, 12:00 AM

by manilabulletin_admin

By Lee C. Chipongian

The Bangko Sentral ng Pilipinas (BSP) sees inflation rate peaking at 4.8 percent for the month of February – more than the four percent in January – partly as an impact of the tax reform program implemented last month.

“(BSP) projects the 2006-based February 2018 inflation to settle within the four percent to 4.8 percent range. Higher electricity rates and food prices, along with the full pass-through of higher excise taxes on petroleum products and sugar sweetened beverages, could lead to upward price pressures for the month of February,” the Department of Economic Research of the BSP said.

The BSP forecasts a full-year average inflation of 4.34 percent which was higher than the target range of two percent to four percent. The 2019 inflation forecast was also raised to 3.49 percent from 3.2 percent.

With the climbing inflation rate which was anticipated by the central bank, market analysts expect the BSP will respond by raising key overnight rates to ensure financial and price stability, within the first half period.

After deciding to reduce banks’ reserve requirement ratio by one percentage point, analysts expect a corresponding policy move will happen on March 22 when the Monetary Board holds its policy meeting.

Analysts speculated that the BSP might pull the trigger on the benchmark rate following January’s high-side inflation rate of four percent. It was in September 2014 when the BSP last adjusted policy rates higher by 25 basis points after deciding at the time that the inflation target was at risk.

Presently, the risks to the inflation outlook remains on the upside. These risks or price pressures come from increases in global oil prices mainly, while the effects of the TRAIN is still considered as temporary.

BSP Governor Nestor A. Espenilla Jr. said since these are temporary drivers to inflation it would “eventually stabilize.”

Espenilla said they are closely monitoring second-round effects and is prepared

“to take timely action based on our evaluation of all relevant data.”

The higher global crude oil prices have increased domestic petroleum prices, along with higher food prices due to weather-related disturbances. All these factors contributed to the rise in inflation for January. In addition, the higher excise taxes on fuel and sugar-sweetened beverages further aggravated price pressures.

The BSP continue to assess that inflation path is still manageable “given well-contained inflation expectations over the policy horizon”. This is despite that the balance of risks to the inflation outlook continue to be tilted toward the upside.

Before January 2018, the last time the inflation rate was in the four percent level was October 2014, about the same time that the BSP raised key rates. The peak months at that time was 4.9 percent which was July and August 2014, before falling to 2.7 percent by December 2014.