Oil prices and transport fare hikes seen to spike inflation

Published March 11, 2017, 10:00 PM By Lee C. Chipongian

http://business.mb.com.ph/2017/03/11/oil-prices-and-transport-fare-hikes-seen-to-spike-inflation/

The Bangko Sentral ng Pilipinas (BSP) said it will be mainly the increase in oil prices and transport fare hikes that will pull up inflation higher in the next two years but officials remain confident that averages will remain within the government target band.

 Based on the minutes of the previous Monetary Board meeting, or the BSP’s policy-approving body, inflation expectations as of January continue to show a higher inflation rate for the year.

“Inflation expectations measured using forecast surveys of private sector economists by the BSP and by Consensus Economics — continue to support the BSP’s within-target inflation outlook,” according to the minutes of the February 23 policy meeting.

It said that based on the central bank’s January, 2017 survey of private sector economists, the review showed higher mean inflation forecasts for 2017 at 3.1 percent from three percent previously (December 2016). For 2018, the inflation estimate was also raised to 3.3 percent from 3.1 percent while the inflation forecast for 2019 was at 3.3 percent.

Results of the Consensus Economics survey also for January likewise indicated higher mean inflation forecasts for 2017 at 3.1 percent from 2.9 percent while mean inflation forecast for 2018 is at 3.2 percent.

“The latest baseline forecasts show a higher but within-target inflation path for 2017-2018, due mainly to the increase in oil prices and approved hikes in jeepney and taxi fares,” said the BSP.

The risks to future inflation would also include pending petitions for higher electricy rates and the “short-term impact of the Malampaya maintenance shutdown and the impact of the government’s fiscal reform program.”

In the December survey of private forecasters, the economists pointed to rising global oil prices and the depreciated peso as reasons why they raised the mean inflation rate this year to three percent compared to 1.8 percent in 2016.

Then, the BSP said analysts attributed their higher inflation expectations to a weaker peso, higher global oil prices, healthy domestic demand, and the inevitability of the US Federal Reserve hiking rates soon.

The BSP regularly include the private forecasters’ analysis and the Consensus Economics inflation forecast in its quarterly inflation report but would release advance numbers for the Monetary Board review of current policy stance. For the December survey (conducted between December 7 to 29), there were 26 banks both foreign and local that participated.

Based on the previous survey, the higher mean inflation forecast was due to the increase in domestic fuel prices and its impact on housing and transport inflation “as well as possible effects on prices of the proposed tax reform measures, along with higher government spending.”

Twenty one of the surveyed banks think there was a 77.1 percent probability that the average inflation for 2017 will settle within the two percent to four percent target range of the government. The mean inflation forecast for this year was unchanged at 2.9 percent.

From the February 23 Monetary Board meeting, the BSP announced a 2017 and 2018 inflation forecasts of 3.3 percent and three percent from previous estimates of three percent and 2.9 percent.

The Monetary Board’s next meeting is on March 23.