By Melissa Luz T. Lopez, February 1 2019; Business World

Image Credit to Business World

THE OVERALL increase in prices of widely used goods likely dropped sharply in January for the third straight month, the Bangko Sentral ng Pilipinas (BSP) said, as lower rice prices and power rates may have offset higher fuel prices as the year opened.

The BSP Department of Economic Research said it expects inflation to have settled at 4.3-5.1% last month, hence, could decline further from December’s 5.1%. This will also be the slowest pace since at least April’s 4.5%, but will still be faster than the 3.4% recorded in January 2018.

The Philippine Statistics Authority will release official January inflation data on Feb. 5.

“Domestic oil price hikes — due to higher international crude oil prices and the second tranche of the excise tax adjustment from the TRAIN (Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion) Law — are seen to be the primary driver of inflation for the month,” the central bank unit said in a statement released on Thursday.

Retail pump prices rose for three consecutive weeks last month, mirroring adjustments in global oil prices amid fresh production cuts by the Organization of the Petroleum Exporting Countries and concerns about the trade dispute between the United States and China.

As of Jan. 22, gasoline prices had gone up by P1 per liter while that of diesel climbed by P1.55/liter. Kerosene also saw prices go up by P0.65/liter so far.

On top of this, the excise tax on petroleum products rose by another P2/liter effective Jan. 1, on top of a P2.50 per liter increase last year as provided under the TRAIN law that took effect a year ago.

Higher fish and vegetable prices amid colder weather, coupled with a fresh round of an excise tax increase for alcoholic drinks under the “sin” tax law may have also driven consumer prices up, the BSP said.

However, these price movements were likely offset by lower rice prices, a reduction in electricity rates, and a slightly stronger peso, which returned to the P52 level versus the dollar.

Power distributor Manila Electric Co. said electricity rates went down by P0.5260 per kilowatt-hour in January due to a lower generation charge.

The central bank has been closely watching inflation following last year’s multiyear-high price spikes fueled largely by rice and other food items. Price increases shot past the BSP’s 2-4% target band as early as March 2018 and ascended to a nine-year peak of 6.7% in September and October, which prompted the monetary authority to raise benchmark interest rates from three percent to 4.75% by yearend in an attempt to rein in inflation expectations.

The BSP halted its five consecutive tightening moves in December amid early signs that inflation was on its way down. Now, central bank officials are saying that they can be “prudent” as they see enough room to let 2018’s rate hikes be absorbed by the system, hinting that rates may be kept steady at its first policy review for 2019 next Thursday.

The BSP is also certain that inflation will return to below four percent this year, with the full-year forecast average at 3.2% versus last year’s actual 5.2%.

Market analysts now see the BSP keeping rates steady, with some noting that monetary authorities can start policy unwinding by reducing bank reserves by one percentage point to boost money supply.