Philippines to miss inflation target for 2018 —economists

Economists are now definite that inflation will breach the government’s target of 2- to 4-percent for the full-year 2018, after it accelerated at the fastest pace in over nine years at 6.4 percent in August.

It would be a challenge to achieve the target range of 2 to 4 percent, according to the Action for Economic Reforms (AER).

“At this rate, it will be somewhat difficult to achieve the target of 4 percent,” Jo-Ann Latuja-Diosana, fiscal policy coordinator and economist at AER, told GMA News Online.

Inflation settled at 6.4 percent in August, the fastest pace in over nine years since it came in at 6.6 percent in March 2009.

It was mainly because of the spikes in prices of in prices of rice, energy, and transport, according to the Bangko Sentral ng Pilipinas (BSP).

The BSP’s policy-setting Monetary Board is holding a meeting on Thursday, September 27, mainly to address concerns about soaring inflation.

But aside from inflation, the central bank is also grappling with the peso’s depreciation—now at near 13-year lows against the US dollar.

Peso-dollar rate

“Currency weakness is a concern for the central bank which is also grappling with soaring inflation,” London-based Capital Economics said in a report on September 14, Emerging Asia Economics.

“We expect the peso to remain under pressure and are forecasting for it to reach 55 against the US dollar by year-end and 58 by end-2019,” the report said.

Budget Secretary Benjamin Diokno dismissed Capital Economics’ foreign peso-dollar forecast as “unfounded” and “highly unlikely.”

On Wednesday, September 26, the peso closed at P54.325:$1, its weakest in nearly 13 years since closing at P54.425:$1 on November 22, 2005.

Fernando Aldaba, economics professor at the Ateneo de Manila University (ADMU), has forecasted a full-year inflation rate of 4.8 to 5.5 percent. He did not elaborate.

In July, inflation came in at 5.7 percent— the fastest in at least five years — mainly on the higher prices of food and non-alcoholic beverages.

Independent economic consultant John Paolo Rivera expects inflation to eclipse the government’s working target.

Counter-inflation measures

“My personal forecast of full-year inflation is around 5 percent with consideration for lagged effects of policies initially implemented as well as the short-run effects of counter-inflation measures being implemented now," he said in an email interview.

Economists from the Asian Development Bank expect inflation to settle at 5 percent for the full-year 2018, before decelerating to 4 percent in 2019.

Diokno earlier said he expected inflation to taper off starting July 2018.

Last August, the central bank stated that inflation was likely to peak in the third quarter of 2018, specifically in August or September.

According to the AER, inflation could be tempered in the coming months if the government is able to address food inflation.

“But we can expect some tapering in the last quarter, especially if government will be aggressive in addressing the main drivers, namely, rice, fish, and meat,” said Diosana.

Rivera noted that the Duterte administration’s economic managers are likely on top of the situation.

Supply and demand

“I believe that our fiscal and monetary sectors are doing their best to control inflation through monetary and trade policies that will allow supply to catch up with demand. With these in place, we can expect inflation rate to slow down,” he said.

“Inflation can taper off, as what economic managers claim, if there will be steep adjustments in aggregate supply—allowing it to catch up with aggregate demand,” Rivera noted.

The Departments of Agriculture (DA), Budget and Management (DBM), Finance (DOF), and Trade and Industry (DTI), and the National Economic and Development Authority released last week a list of measures the administration intends to implement in addressing inflation.

“I believe BSP is already adjusting interest rates to catch up with inflation. Per data from BSP and PSA, inflation rate has been above interest rates. In this situation, instead of saving, people will spend; hence, increasing aggregate demand,” Rivera said.

During its policy meeting last month, the BSP raised interest rates by 50 basis points, a move that brought the overnight borrowing rate to 4.00 percent, the overnight lending to 4.50 percent, and the overnight deposit to 3.50 percent.

Budget chief Diokno noted the inter-agency Development Budget Coordination Committee is reviewing its inflation forecast and target for this year.

The government revised last March its inflation forecast to 4.0 to 4.5 percent for the 2018, from an earlier outlook of 2.0 to 4.0 percent, surpassing its working target for the year. —VDS, GMA News