Headline inflation was seen to have moderated enough in December as to close lower than the six-percent rate reported in November, according to the Manila unit of the Dutch financial services giant ING.
ING Bank in Manila said inflation expectation best shown by the easing of price pressures for the period should allow the headline rate to average no higher than 5.5 percent.
The lender took into consideration the sustained stability of global energy prices at a time when key commodity prices posted significant improvements from earlier months.
“Index heavyweights food items and energy-related sub-indices are seen to pull inflation below the six percent handle as supply chains normalize and global energy prices plunged faster in November and December than they rose from September to the 2018 peak in October,” ING Bank reported.
Also, ING senior economist Nicholas Mapa said the recovery of the agriculture sector with better harvest and grain imports in the fourth quarter contributed to the stability of both supply and prices.
“Most food items with the latest government bulletin showing second week December rice inflation at 10.03 percent compared to November 2018’s 14.46 percent,” Mapa said.
“With these supply-side oriented bottlenecks mitigated or removed, we can expect inflation pressures to dissipate quickly and the overall headline print to slide in 2019, barring any return of these supply issues,” he added.
The lender said should the downward trend continue and headline inflation moves closer to within the government’s target around the second quarter this year, the Bangko Sentral ng Pilipinas (BSP) was likely to “unwind some of its aggressive hike cycle.”
According to Mapa, this development will help reinforce the perceived slower local output growth measured as the gross domestic product for the year.
“Cuts to the BSP’s policy rate are expected to be carried out even with the central bank widely expected to slash reserve requirements as early as the first quarter,” he said.
The ING economist likewise explained that risks to the inflation outlook have now tilted to the downside with the rice tariffication law that muted price pressures by cutting rice costs by as much as P7 per kilo in addition to the reduction in oil prices.
However, Mapa raised the likelihood of extreme weather conditions with forecast El Niño in the first half this year and the surprise supply cuts from the Organization of Petroleum Exporting Countries could reverse the recent crude oil’s plunge.
Headline inflation fell to a four-month low of 6 percent in November from a nearly 10-year high of 6.7 percent two months prior principally as a result of a mismanaged farm sector.