Inflation to quicken further in December, expects economist

People buy rice from a store along a residential street market in Manila. ABS-CBN NEWS

MANILA – Inflation could rise further in the fourth quarter of 2018 due to the damage caused by typhoon “Ompong,” an economist from Standard Chartered Bank told ABS-CBN News Tuesday.

Inflation may hit 7 percent in the fourth quarter of 2018 and peak in December at 7.4 percent, said Chidu Narayanan, Asia Economist at Standard Chartered.

Inflation accelerated to 6.4 percent in August, with the government saying it was likely to slow down later in the year as food supply increases during the harvest season in October.

However, “Ompong” battered the northern part of the Philippines just a few weeks from harvest season causing a total of P26.7 billion damage in crops, livestock, fisheries and facilities, according to the Department of Agriculture (DA).

The DA said Ompong’s damage to rice crops alone was worth P14.5 billion.

Fish inflation “could remain high” in the near term after Ompong curtailed the already-reduced supply, Narayanan said.

“This, along with still-high rice prices, may keep food inflation elevated despite government efforts. This is likely to keep upside pressure on headline inflation,” Narayanan said.

“The impact of the typhoon is likely to weigh heavily on supply for the rest of this year,” he added.

Narayanan said Standard Chartered sees higher average inflation of 5.5 percent in 2018 and 4.8 percent in 2019 compared to the government’s target average of 2 to 4 percent.

The rice tariffication bill, when passed, could boost rice supply easing inflationary pressures starting from end of 2018, Narayanan said.

Meanwhile, the proposed removal of administrative and non-tariff barriers on imported fish, sugar, meat and vegetables should help cap inflation. But higher crude oil prices and a weak peso still pose upside risks, he said.

Narayanan said he expects the Bangko Sentral ng Pilipinas to respond with more rate hikes.

“I expect BSP to respond to higher inflation with a further 100bps of rate hikes – 50bps at the 27 September meeting, followed by hikes of 25bps each at the November and December meetings,” he said.

This would take the policy rate to 5 percent by the end the year from 4 percent today.

The BSP is set to meet during a Monetary Policy meeting today, Sept. 27. (ABS-CBN News)

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