As expected, inflation grew faster in January to 2.9 percent, driven by price increases in the heavily-weighted food and non-alcoholic beverages index, the Philippine Statistics Authority yesterday said.
This is the highest inflation recorded since June 2019 when inflation was posted at 2.7 percent.
January’s figure is also higher than the 2.5 percent posted in December last year but much slower than the 4.4 percent figure for January last year.
“Food and non-alcoholic beverages index registered an annual increment of 2.2 percent which primarily contributed to the uptrend of inflation in January 2020,” PSA said.
The report added that alcoholic beverages and tobacco increased by 19.2 percent; clothing and footwear, 2.7 percent; housing, water, electricity, gas, and other fuels, 2.5 percent; transport, 3.0 percent; recreation and culture, 1.5 percent; and education, 4.7 percent.
On the other hand, PSA noted a slower annual increase of 2.6 percent in restaurant and miscellaneous goods and services index. The rest of the commodity groups retained their previous month’s annual rates.
Excluding selected food and energy items, core inflation went up further by 3.3 percent in January of this year. Core inflation was observed at 3.1 percent in December 2019, while it was 4.4 percent in the same period in 2019.
Benjamin Diokno, Bangko Sentral ng Pilipinas, said January’s figure was within the BSP’s forecast range of 2.5 to 3.3 percent.
“This is consistent with the prevailing assessment that inflation is expected to gradually approach the midpoint of the target range in 2020 and 2021,” Diokno said.
He added the BSP will consider all the latest developments in the Monetary Boards’s policy setting meeting scheduled for today.
The Monetary Board decided to maintain the interest rate on the BSP’s overnight reverse repurchase (RRP) facility at 4.0 percent. The interest rates on the overnight deposit and lending facilities were also kept unchanged at 3.5 percent and 4.5 percent, respectively.
Nicholas Antonio Mapa, ING Bank senior economist, said they expect inflation to inch higher and “bounce then settle” as reverse base effects from the 2019 inflation lows nudge prices higher in 2020.
“Risks noted by the BSP are the potential rise in crude oil prices as well as trade war disruptions to the supply chain. For the full year, ING still expects inflation to remain within target and average 3.2 percent (for 2020) but peaking in the third quarter,” Mapa said.
Despite the uptick in inflation, Mapa said they expect the BSP to cut policy rates by 25 basis points todaywith the BSP 2020 inflation forecast pegged at 2.9 percent.
“Given the backdrop for slowing global growth, upside risks to the inflation outlook are dampened considerably with crude oil prices tanking on expectations for weaker global growth and depressed oil demand from China. With inflation still expected to remain within target and as global growth is likely to be hampered by the spillover effects from the recent 2019-nCoV episode, we expect the central bank to resume unwinding its previous policy tightening to bolster growth momentum and chase the 6.5-7.5 percent growth target,” Mapa said.
Jun Neri, lead economist of the Bank of the Philippine Islands, said they also expected inflation to “maintain its upward trajectory in the first month of 2020.”
“Despite the recent decline in oil prices, our outlook for inflation is still the same. If the Novel Coronavirus crisis is resolved in the 1st quarter, oil prices may climb in the coming months together with the recovery in China. Furthermore, most of the favorable base effects from rice tariffication may disappear in the second quarter. Given these possibilities, our average inflation forecast for 2020 is still at 3.4 percent,” Neri said.
With inflation still below 3 percent, Neri said the BSP may cut its policy rate also by 25 basis points today.
“Governor Diokno said recently that 50 basis points cut is still on the table given the likelihood of within target inflation this year. However, a follow through RRP cut may be more challenging given the upside risks to inflation emanating from the possibility of higher rice prices and the implementation of excise taxes. Depreciation pressures from portfolio outflows, lower tourism receipts, and potential slowdown in remittances may also prevent the BSP from cutting all the way down to 3 percent. As we have said before, the risk of significant portfolio outflow is high when inflation is above the policy rate,” Neri stressed.
Ernesto Pernia, Socioeconomic Planning secretary, said the government remains vigilant “as upside risks have emerged from several unexpected phenomena and despite a stable inflation outlook for 2020.”
“Despite the relatively stable inflation outlook, we cannot be complacent, as the balance of risks remains on the upside for 2020 due to the effects of the Taal Volcano eruption, spread of African Swine Fever, and novel coronavirus (2019-nCov),” Pernia said.
He added that the country has intensified its preparedness for disaster risk response, including the formulation of recovery and rehabilitation plans, like in the areas affected by the Taal Volcano eruption.
“We should also increase investments in climate and disaster-resilient farm technologies and practices, and promote the adoption of such among farmers and fisherfolk,” Pernia said.
“We remain attentive to the recent developments abroad which could affect domestic pump prices. Over the medium- to long-term, it is essential for the country to explore alternative and cheaper energy from local sources to become less import-dependent,” he added.
The PSA report also said inflation in NCR slowed down to 2.7 percent in January. Its annual rate was posted at 2.8 percent in December 2019, and 4.6 percent in January 2019.
This downtrend was effected by the slowdown in the annual increase of food and non-alcoholic beverages index at 3.4 percent during the month.
Meanwhile, inflation in areas outside NCR went up further by 3.0 percent. In the previous month, inflation in AONCR was recorded at 2.4 percent and in the same month in 2019, 4.4 percent.
Except in Cordillera Administrative Region (CAR), whose inflation remained at 2.8 percent, all the regions in areas outside NCR posted higher annual mark-ups in January 2020.
The highest inflation was still observed in Region V (Bicol Region) at 3.9 percent, while the lowest remained in Bangsamoro Autonomous Region in Muslim Mindanao (BARMM) at 1.0 percent.
