DOF expects inflation rate within government target

February 14, 2017

The Department of Finance (DOF) expects inflation to inch up in the coming months but would remain within the government’s inflation target, it said in a statement Tuesday.

Based on the latest DOF Economic Bulletin, inflation could rise to above two percent in the near-term as global petroleum prices start to rebalance following the decision of oil producing nations to cut output.

“Inflation will likely clock above two percent in the coming months as suggested by [January] core inflation of 2.5 percent. Rising energy prices will contribute to higher inflation,” Finance Undersecretary Gil Beltran said in a report to Finance Secretary Carlos Dominguez III.

Beltran, also the DOF’s chief economist, noted the World Bank is forecasting average world oil prices to rise by 28.5 percent to $55 per barrel this year, from $42.8 per barrel in 2016.

But despite a projected increase in fuel prices, Beltran said macroeconomic fundamentals remain sound as inflation stays within the targeted range.

“This [sound macroeconomic fundamentals] will provide economic authorities flexibility to maintain rapid growth despite uncertainties in the world economy,” Beltran said.

In January, inflation increased slightly to 2.7 percent, matching DOF's internal forecast and 0.1 percentage point higher than in the previous month, but within the target range of  2.0 percent to 4 percent earlier set by the Bangko Sentral ng Pilipinas (BSP).

The slight increase in inflation was driven mainly by food price increase, Beltran said, adding that the food group contributed 1.5 percentage points to the 2.7 percent inflation rate or more than half of the general price increase.

In January, transport prices rose from December’s 1.9 percent to 2.4 percent; clothing and footwear jumped from 2.5 percent to 2.8 percent; housing, utilities & fuels from 1.3 percent to 1.8 percent; and recreation and culture increased from 1.7 percent to 1.9 percent.

Prices for health also slightly moved up from 2.5 percent to 2.6 percent; and restaurant & miscellaneous services rose from 2.1 percent to 2.2 percent. DMS