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Inflation Might Have Reached Its Higher End Early.

The Bangko Sentral ng Pilipinas (BSP) said inflation last month could have touched the higher end of the two to four percent target as prices of petroleum products and other consumer goods went up following the implementation of the tax reform law. The central bank’s Department of Economic Research said inflation in January is projected to range between 3.5 and 4 percent. The said range has already reached BSP’s set inflation target of two to four percent between 2018 and 2020.

According to BSP:
“the increase in the prices of domestic petroleum product on account of higher global crude oil prices along with higher food prices due to weather-related disturbances could contribute to the rise in inflation for January.”

Additionally, they also noted that the higher excise taxes on fuel, sugar-sweetened beverages with the implementation of the TRAIN this month, will pressure prices to go up. What cushioned the faster rise in consumer prices last month was the lower electricity rate in Meralco-serviced areas.

BSP Governor Nestor Espenilla Jr. said that the monetary authorities are carefully assessing the next round effects of inflation and expectations could be affected as the first round price effects of TRAIN and other factors such as oil prices are evolving more or less as expected. The robust domestic demand and the benign inflation environment have allowed the BSP to keep interest rates steady since September 2014 to accommodate the expanding economy.

Espenilla also noted that there have been a lot of significant developments since the December policy review which needs to be considered in the coming February review. The BSP is scheduled to hold its first rate-setting meeting on Feb 8. He also added it’s very important for BSP to meet the inflation target comfortably while mitigating the upside risks.

Based on its latest assessment, the BSP sees inflation picking up to 3.4 percent this year before easing to 3.2 percent in 2019. Inflation kicked up to 3.2 percent last year from 1.8 percent in 2016 primarily due to higher oil prices. Some economists see the BSP raising rates by as much 100 basis points this year starting as early as the first quarter. The central bank last raised interest rates by 25 basis points in September 2014.

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