Inflation seen staying above 2% in Q1

Published January 14, 2020, 12:00 AM

by manilabulletin_admin


Inflation rate is expected to stay above the two-percent level in the first quarter this year as both the market and the central bank analyses the impact of the Taal Volcano eruption on price pressures.

In its latest “Market Call” report, Metrobank affiliate First Metro Investment Corp. and its research partner, University of Asia and the Pacific said the stronger consumer spending in the last quarter of 2019 will see to it that jobs will be created and thus lower the poverty rates, while the low inflation average in the same quarter – despite the 2.5 percent December inflation and “resurgent infrastructure spending” will ensure continued growth going forward.

In the meantime, according to FMIC-UA&P, “with still relatively weak money growth, we expect a last 25 basis points (bps) cut in policy rate by the Monetary Board in the first quarter 2020. That together with wider trade/CAB deficits should again put pressure on the peso especially at the onset of 2020.”

In the next few months, FMIC-UA&P also sees future inflation will begin to climb “a little above two percent.”

FMIC-UA&P’s outlook also includes:

• Continuing strength in employment gains and the sharp reduction in poverty rates (giving) more reason for optimism for faster GDP growth in the last quarter 2019 and into 2020.

• Not only did unemployment and underemployment rates fall to record lows, the fourth quarter 2019 also added 193,000 jobs from already elevated employment levels in the third quarter. This, together with an expected strong rebound in infrastructure and capital outlays in the last two months of 2019 should boost investment spending in the fourth quarter.

• Consumer spending should continue to post above- average gains in the fourth quarter, not only due to the above, but also with low inflation (in) the fourth quarter.

• Money growth (M3) remains well below 10 percent despite the earlier policy rate and reserve requirement ratio (RRR) cuts.

• The peso may have seen its best months as we expect higher BOT/CAB deficits in the fourth quarter with National Government ramping up infrastructure spending and the economic momentum gathers pace.

The Bangko Sentral ng Pilipinas (BSP) as of its December 12 Monetary Board policy meeting, has a 2.9 percent inflation forecast for both 2020 and 2021.

Based on the minutes of the December 12 policy meeting, the BSP’s decision to keep the benchmark rate at four percent end-2019 was because of the continued benign inflation environment. “The BSP has scope to keep the policy interest rate unchanged given the benign inflation outlook and firm domestic economic growth prospects. At the same time, keeping monetary policy settings unchanged will enable the recent monetary policy actions to continue working their way through the economy.”