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Philippines: Inflation likely hit high end of target
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) said inflation last month could have touched the higher end of the two to four percent target as prices of petroleum products and other consumer goods went up following the implementation of the tax reform law.
The central bank’s Department of Economic Research said inflation in January is projected to range between 3.5 and four percent. The BSP has set an inflation target of two to four percent between 2018 and 2020.
“The increase in the prices of domestic petroleum product on account of higher global crude oil prices along with higher food prices due to weather-related disturbances could contribute to the rise in inflation for January,” the BSP said.
President Duterte signed Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law lowering personal income tax rates but raising the excise tax on fuel, automobiles, sweetened beverages, among others.
“In addition, higher excise taxes on fuel, sugar sweetened beverages with the implementation of the TRAIN this month, would lead to additional upward price pressures,” the central bank said.
The lower electricity rates in Meralco-serviced areas, the BSP said, cushioned the faster rise in consumer prices last month.
BSP Governor Nestor Espenilla Jr. said the monetary authorities are carefully assessing the next round effects and how inflation expectations could be affected as the first round price effects of TRAIN and other factors such as oil prices are evolving more or less as expected.
“We continue to continue to see the upward inflationary effects as transitory. However, we are carefully assessing next round effects and how inflation expectations could be affected,” he said.
The robust domestic demand and the benign inflation environment have allowed the BSP to keep interest rates steady since September 2014 to accommodate the expanding economy.
According to Espenilla, there have been a lot of significant developments since the December policy review that need to be considered in the coming February review.
The BSP is scheduled to hold its first rate setting meeting on Feb 8. Based on its latest assessment, the BSP sees inflation picking up to 3.4 percent this year before easing to 3.2 percent in 2019.
Inflation kicked up to 3.2 percent last year from 1.8 percent in 2016 primarily due to higher oil prices.
“We have been updating the data and evaluating various price surveys to gain insight on the overall impact on the inflation outlook. This is an intensely data-driven exercise,” he said.
Espenilla said the ability to meet the inflation target comfortably and mitigating the upside risks is very important to the BSP.
Some economists see the BSP raising rates by as much 100 basis points this year starting as early as the first quarter. The central bank last raised interest rates by 25 basis points in September 2014.
Source: http://www.philstar.com/business/2018/02/02/1783600/inflation-likely-hit-high-end-target