MANILA, Philippines — The Asian Development Bank on Wednesday raised its inflation forecast on the Philippines as higher international oil prices — worsened by the local currency’s depreciation — build up more price pressures.
In an update of its annual economic publication, the Manila-based institution said it expects Philippine inflation, which is now far higher than the rest of Asia, to average 5 percent in 2018, before tapering off to 4 percent in 2019.
Related Stories
ADB’s latest inflation outlook on the Philippines was higher than its previous estimates of 4 percent for this year and 3.9 percent for next.
“Inflation rates in Southeast Asia are mostly stable, except in the Philippines,” the Bank said.
“A confluence there of cost-push factors — mainly elevated oil prices, food supply disruptions, and a new tax reform program — drove transport, electricity, and food prices higher,” it added.
Domestic inflation jumped 6.4 percent in August, the highest level in almost a decade, as oil and rice prices spiked. In the first eight months, inflation averaged 4.8 percent, well above the Bangko Sentral ng Pilipinas’ 2-4 percent target range for the year.
“That’s what we’re seeing. It’s about stagnant supply side, it’s also rising demand [and] it’s also restrictions on the import side,” Kelly Bird, ADB country director for the Philippines, told a press conference.
The central bank has raised its policy rates by a cumulative 100 basis points from May to August, with the intention of tempering consumer demand that likely lifted commodity prices. Monetary authorities also vowed to undertake “strong action” in their rate-setting meeting on Thursday.
In a bid to fight inflation, President Rodrigo Duterte, who is facing public backlash over spiralling commodity prices, recently issued orders that seek to address food supply bottlenecks by streamlining the entry and delivery of imported farm products.
Inflationary pressures are expected to cool down next year as tighter domestic monetary policy begins to take effect, ADB said.
“The government has been very proactive in addressing inflation,” Bird said.
‘Minor impact’
Aside from food supply problems, people have blamed soaring consumer prices on the Duterte administration’s Tax Reform for Acceleration and Inclusion law that lowers personal income taxes while raising excise levies on fuel and “sin” products, among others.
But according to Bird, the tax reform law, which is central to the government's economic agenda, has “relatively minor impact" on the country’s overall inflation.
READ: Duterte Year 2: TRAIN threatens poor, president's popularity
“Taxes in themselves do not cause inflation. It is not the cause of what we’re seeing as the surge in inflation in recent months,” the ADB official said.
“It really does tell me there are issues on the supply side. On the other hand, oil prices continue to rise... I think it’s all primarily on the supply side and we also recognize there are some demand pressures as well [because] the economy has grown strongly,” he added.
The ADB also on Wednesday trimmed its growth outlook on the Philippine economy following the slower than expected gross domestic product expansion in the first half of the year, and amid high inflation.
READ: ADB slashes growth forecasts for Philippine economy as inflation bites