Fuel prices seen increasing due to weaker peso

By Cai U. Ordinario and Bianca Cuaresma - September 5, 2017

http://www.businessmirror.com.ph/fuel-prices-seen-increasing-due-to-weaker-peso/

Filipinos should brace for higher oil prices in the coming months due to the depreciation of the peso, according to the National Economic and Development Authority (Neda).

Data from the Philippine Statistics Authority (PSA) showed that inflation accelerated to 3.1 percent in August due to higher food and transportation costs. The August inflation was faster than the 2.8 percent posted in July and the 1.8 percent recorded a year ago. Socioeconomic Planning Secretary Ernesto M. Pernia said the weaker Philippine peso could make oil and electricity prices higher in the months ahead.

“The continuing surge in domestic petrol prices, coupled with depreciation in the peso-dollar rate, may exert upward pressures on inflation, leading to increases in the cost of electricity, gas and other fuels in the near term,” Pernia said.

Pernia also warned that the economic disruptions caused by Hurricane Harvey in the United States may also dampen energy supplies and further increase oil prices.

On the domestic front, this could cause higher transportation and electricity costs in the near term, the Neda official added.

University of Asia and the Pacific (UA&P) School of Economics Dean Cid L. Terosa agreed and said other factors that could speed up inflation in the coming months include the increase in consumer spending during the holidays.

Philippine economy is at its strongest during the last quarter of the year due to higher consumer spending. The Philippines remains dependent on consumption spending to drive its economy.

Terosa added the impact of the recent bird flu outbreak and the suspension of transportation net work company (TNC) company Uber will be minimal compared to the depreciation of the peso.

“Inflation in September will remain in the 3 to 3.3 percent range. The effect of poultry prices and transportation and transportation costs won’t be as crucial as the weakening peso and gradually increasing demand due to the ‘-ber’ months,” he said.

Pernia said these risks could be offset by higher domestic productivity in agriculture and the impact of favorable weather conditions on commodity prices.

While the August inflation was slightly higher than market expectations of 3 percent, Pernia said this is still within the government’s target of 2 to 4 percent.

Pernia said inflation picked up in August due to the increase in the prices of vegetables, fish, corn, flour, and bread.

“Inflation is still expected to remain well within government’s target for the year despite accelerating for the second time in a row. Nonetheless, we should continue to closely monitor upside and downside risks,” Pernia said.

PSA data showed that inflation in Metro Manila, or the National Capital Region (NCR), was significantly higher compared to Areas outside of NCR (AONCR).

Inflation in NCR increased 4 percent in August, higher than the 3.8 percent posted in the previous month and 1.2 percent last year. The PSA noted there was a double-digit growth in inflation in transport of 11 percent.  In AONCR, inflation was at 2.8 percent. In July, the rate stood at 2.6 percent.

‘Manageable inflation’

The Bangko Sentral ng Pilipinas (BSP) said the slight acceleration in the growth of consumer prices in August is still proof that inflation movements will be “managable” up until the end of 2017.

Central Bank Governor Nestor A. Espenilla Jr. said in a statement following the release of the August inflation figures the higher inflation during the month is still within their expectations and will bode well for their policy setting meeting this month.

“The BSP continues to see a manageable inflation outlook over the policy horizon after taking into consideration the latest inflation reading in August,” Espenilla said.

The central bank expects inflation to settle within the midpoint of its 2 to 4 percent target range for the year.

Espenilla said the inflation path for the remainder of the year will be supported by their favorable outlook for domestic activity with appropriare liquidity conditions and well-anchored inflation expectations.

“The within-target path of inflation over the policy horizon provides the BSP with the flexibility to asses our monetary tools to enhance further our responsiveness to the evolving requirements of the economy,” he added.

The BSP will be have its next monetary policy setting on September 21. This will be the BSP’s sixth meeting for the year.

In its latest monetary policy meeting, the BSP moved to maintain all policy rates, as the expected higher inflation trajectory is still within the scope of their target range for the year.