PH to enjoy low inflation until 2016, says economist

MANILA, Philippines – Despite threats that global commodity prices are on the upswing, the Aquino administration is bound to enjoy a low inflation environment until 2016 and contribute to achieving growth targets.

This was the position of Victor Abola of the University of Asia and the Pacific who said the Philippines will largely be spared from external threats in the medium term, citing improving local food and fuel prices.

The government targets inflation to be around 3% to 5% every year until 2016, while economic growth targets are expected to peak at 7.5% to 8.5% also by 2016.

“This [inflation] is an important concern. However, I am quite bullish about the inflation outlook, meaning I don’t expect inflation to be a very big problem this coming year and most probably the years to come,” Abola told reporters in a briefing on Monday, October 15.

“Low inflation will be good for growth but there is no magic number here,” he added.

Low pump, food prices

Abola explained his bullish inflation outlook is based on expectations that fuel prices will not post any significant increase in the medium term and that food prices have improved.

One of the reasons why oil prices will not be a factor is that a 10% increase in fuel prices will only result in a 0.66% increase in inflation, Abola said, stressing how oil industry deregulation in the 1990’s has paid off.

The presence of independent oil firms has grown through the years to about 25.7% of the market as of 2011, Abola said, noting that lower pump prices are particularly evident in areas where there are more retail stations.

“Competition results in lower oil product prices. Pump prices are lower where there are more retail stations. For gasoline, an average of P5.3/liter lower ratio as the ratio goes up (while) for diesel, an average P2.13/liter lower as ratio goes up,” Abola said in his presentation.

In terms of increasing food prices, Abola said while it remains a threat, it is not a significant one. He said corn prices, for one, has seen better harvests than last year.   

This has caused global food prices to temper in the past few months. Abola said that this is expected to spillover to the Philippines.

“It’s a threat that commodity prices will go higher and will affect inflation. However, if you’ve read the latest news on corn for example, they are seeing better harvests already ’cause last year’s harvests was bad,” Abola said. – Rappler.com