Inflation quickens in December, beating forecasts

ABS-CBN News

Posted at Jan 07 2020 09:10 AM | Updated as of Jan 07 2020 10:58 AM

Dried fish is sold at a Manila market. Inflation accelerated in December from the previous month, but still within the Bangko Sentral's goal. Mark Demayo, ABS-CBN News/file

MANILA -- Inflation accelerated in December, beating analysts' expectations while staying within the Bangko Sentral ng Pilipinas' target.

The consumer price index rose 2.5 percent, compared to the median forecast of 2 percent in a Bloomberg poll of economists. This brought average inflation for the full year 2019 to 2.5 percent, still within the BSP's 2 to 4 percent goal.

Inflation pressures are tilted to the upside this year due to world oil prices and potential effects of African swine fever, the BSP said. Fresh tensions between the US and Iran could push world crude prices higher, analysts said.

From a peak of 6.7 percent in October 2018, inflation "already eased thereafter so that would result in some upward normalization in inflation" said RCBC head of Economics and Industry Research Michael Ricafort on the eve of the release of official figures.

Cooling inflation in 2019 enabled the BSP to cut the benchmark lending rate by 75 basis points and Governor Benjamin Diokno signaled a further 50-basis point cut in 2020.

The economy is in a "good place" to weather volatility in the financial markets but the US-Iran tensions pose risks to remittance and household consumption, said Security Bank Treasury Group assistant vice president and economist Dan Roces. 

"The tension right now is the bigger risk to inflation. We are a net importer of oil so any sensitivity will come as a shock to price growth," Roces told Market Edge

"That will affect remittance level substantially. It’s the second largest deployment if the OFWs get demobilized that could potentially affect remittance levels and by definition household consumption as well," he added. 

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Farm damage due to storms likely pushed up food prices last December, ING Bank senior economist Nicholas Antonio Mapa said. The headline rate is moving in-line with expectations to "bounce then settle" at the 3 percent level this year, he said.

Inflation could average 3.2 percent this year with the peak seen at 3.4 percent, Mapa said. The BSP could start cutting interest rates in February, he said.

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Edson Joseph Guido, ABS-CBN Data Analytics