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Economists watch if inflation has peaked

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INFLATION can now go either way towards yearend after September logged a fresh nine-year high, economists said in separate assessments last weekend.

Prices of basic goods rose by 6.7% in September from a year ago to mark a fresh nine-year high, although a tad slower than market expectations.

The Philippine Statistics Authority said on Friday last week that food, transport and utility prices led the increase last month, worsened by the impact of typhoon Mangkhut, locally called Ompong, and unrelenting oil prices.

That pushed the nine-month pace to five percent, a percentage point higher than the 2-4% target set by the Bangko Sentral ng Pilipinas (BSP) for the entire 2018.

Headline inflation rates in the Philippines (September 2018)

Both the central bank as well as President Rodrigo R. Duterte’s economic team are of the view that inflation has already peaked, and will clock in slower during the last three months of 2018.

On a month-on-month basis, inflation clocked in at 0.9% in September, steady from August’s pace.

Financial markets reacted in different ways to Friday’s inflation report, with the Philippine Stock Exchange index shedding 0.21%, though shallower than Thursday’s 1.63% fall, while the peso actually rebounded against the dollar, strengthening by nine centavos from Thursday.

But Emilio S. Neri, Jr., chief economist at the Bank of the Philippine Islands (BPI), said inflation could still pick up.

“The behavior of inflation has a direct link with oil. Unless the said commodity shows a consistent deceleration, then consumer prices may continue to rise significantly,” Mr. Neri said in a report sent by e-mail late last Friday.

Citing historical data, BPI’s report said inflation usually breaches target when average global oil prices surge by at least 30% year-on-year. The benchmark West Texas Intermediate (WTI) crude oil price rose by 40% last month, according to the report.

“Recent global oil price trends are likely to prevent a turn in the headline inflation print in the near term. Inflation could peak in December should oil prices fall month-on-month in October and November but the turn could be delayed further if WTI Crude and Brent continue to soar,” Mr. Neri cautioned, adding that the impact of damage from typhoon Ompong may spill into this month.

Still, Land Bank of the Philippines market economist Guian Angelo S. Dumalagan said that inflation is “starting to drop” after September, when Ompong’s impact on food prices contributed 30-50 basis points in the September inflation print.

London-based Capital Economics also said that inflation could ease over the months ahead as government interventions to boost rice supply help ease price pressures.

“[E]ven if oil prices remain elevated, oil price inflation will start to moderate over the next few months. Finally, the impact of previous tax hikes on items such as fuel, alcohol and high-sugar drinks will drop out of the annual comparison at the beginning of next year,” the think tank said in a report, even as it said it expects two more rate hikes from the Bangko Sentral ng Pilipinas (BSP) either in its Nov. 15 or Dec. 13 policy review — the last two for 2018.

The analysts also pointed out that the sustained depreciation of the peso may push the BSP to hike rates further, apart from the goal of reining in inflation expectations. — Melissa Luz T. Lopez