Subdued inflation seen in 2016 amid cheap oil, stable food prices

MANILA — Cheap oil and stable food prices augur well to keep inflation subdued this year and supportive of economic growth, a bulletin from the Department of Finance’s chief economist states.

“Prospects for the year point toward subdued price increases due to developments in the international market. International energy prices are expected to remain depressed this year,” Finance Undersecretary Gil S. Beltran said in an economic bulletin on Tuesday.

Inflation in January slowed to 1.3 percent from 2.4 percent a year ago and 1.5 percent last December. The government expects the rate of increase in prices of basic goods to rise moderately this year, settling within the 2-4 percent range.

In 2015, inflation averaged 1.4 percent, an almost three-decade low.

Last month, inflation eased as the country benefitted from depressed fuel prices, Beltran noted.

Also, “food price increase has been minimal, tempered by a year-on-year decline in rice price inflation,” the Finance official pointed out.

Beltran added that housing rental rates rose by just a “modest” 2 percent last January.

For the rest of this year, Beltran sees inflation remaining modest amid external developments auguring well to domestic prices.

For one, “further decline in coal prices should translate into lower electricity costs,” as Beltran cited that coal-fired plants supply bulk of the country’s power needs. Cheaper coal would pull down power generation costs, charges for which compose almost half of consumers’ monthly electricity bills, he noted.

Also, “despite the ongoing dry spell, international food prices are not expected to spike,” Beltran said, citing a recent World Bank forecast pointing to a decline rice prices in 2016. In case the prolonged dry spell due to El Niño causes a shortfall in domestic rice production, importation would keep prices low, he added.

The government was eyeing to import between 300,000 and 400,000 metric tons in excess rice during the first semester in order to mitigate El Niño’s impact on food supply as well as ensure stable food prices.

In all, “subdued inflation enables the country to boost domestic demand without igniting inflation,” Beltran said. “This will give the Bangko Sentral ng Pilipinas ample room to manage domestic liquidity to boost the country’s gross domestic product growth.”  SFM