Connect with us

Business

Inflation seen below 2% despite oil price hike threat

Joshua Lao

Published

on

Although the price of imported oil could prove a disruptor in the stability of commodities prices, forecast inflation in the third and fourth quarter this year should remain below 2 percent, Rizal Commercial Banking Corp. lead economist Michael Ricafort said.

“Despite some increase in global oil prices after the attacks on Saudi Arabia’s major oil production/export facilities, the estimated inflation in the third fourth quarter 2019 would continue to average below 2 percent, especially if the net increase in global crude oil prices would be limited to around +$10 or a little over +$10,” Ricafort said in a text message.

He acknowledged that while the transport sector accounts for eight percent of overall inflation, the disruption might not be that much given the sustained decline of oil prices in recent years.

“Transport accounts for about 8 percent of the inflation basket and electricity, gas and other fuels account for about 7.4 percent or potentially a combined 15 percent share for inflation items that are affected by higher oil/petroleum prices,” Ricafort said.

He argued the impact of higher oil prices on inflation has diminished over the years although he said this “may still have an impact in terms of some uptick in inflation especially if global crude oil prices go up significantly and become volatile.”

According to him, the country’ reliance to oil has diminished over the past years, particularly in the energy/electricity sector as the share of renewable energy in the power basket grew.
He likewise said the price hike on crude oil products should only be one off, with the Bangko Sentral ng Pilipinas seen to proceed with the easing tack it has adopted when the rate-setting Monetary Board meets this month.

“Any further easing in the local policy rate could still be possible as early as the next BSP rate-setting meeting on 26 September 2019, especially if the recent increase/spike in global crude oil prices turns out to be temporary and if the US Federal Reserve decides to cut its Fed Funds Rate by 0.25 on 18 September 2019 as expected in the markets,” he said.

Advertisement
Click to comment