2019 inflation settles at 3-year low of 2.5%

US-Iran tensions’ impact on oil prices poses risks to 2020 outlook

Inflation rose by 2.5 percent year-on-year in December last year amid seasonal price increases during the Christmas holidays and the typhoons that jacked up food prices, the government reported Tuesday.

For the entire 2019, headline inflation averaged 2.5 percent, the lowest in three years or since the 1.3 percent posted in 2016.

The full-year 2019 inflation rate settled within the government’s 2 to 4 percent target range.

The rate of increase in prices of basic commodities in 2017 was a higher 2.9 percent, while it hit a 10-year high of 5.2 percent in 2018 due to skyrocketing global oil prices, new or higher excise taxes slapped on consumption under the Tax Reform for Acceleration and Inclusion (TRAIN) Act and domestic food supply bottlenecks especially of rice.

“The country ended last year with steady inflation but the government must remain vigilant and proactive in managing the impact of potential sources of price pressures this year such as typhoons, continuing presence of African swine fever in the country and the heightened conflict in the Middle East,” Socioeconomic Planning Secretary Ernesto M. Pernia said in a statement.

During the month of December alone, higher transport costs amid increasing oil prices and faster increases in prices of food, nonalcoholic beverages, alcoholic drinks and cigarettes pushed inflation up, Deputy National Statistician Rosalinda P. Bautista told reporters.

Bautista said that seasonal factors reflecting higher demand during the Christmas season raised prices especially of food and nonalcoholic beverages, including meat products, as well as recreation and cultural activities.

The onslaught of typhoons “Tisoy” and “Ursula” last month also made vegetables, fish and fruits more expensive, Bautista added.

Pernia, who heads the state planning agency National Economic and Development Authority (Neda), said that the recovery and rehabilitation plans for the typhoon-affected areas must be immediately implemented and the production support programs for the affected farmers and fisherfolks fast-tracked.

“Over the medium to long-term, the agriculture, forestry and fisheries sector must increasingly adopt climate and disaster-resilient technologies and best practices. Climate and disaster risks should also be considered in the program and project designs in the sector,” the Neda chief said.

Rice prices nonetheless declined 6.8 percent year-on-year last December—although at a softer pace than November’s 8.3-percent drop, continuing the downward trend during the past eight months, thanks to the implementation of the Rice Tariffication Law that liberalized importation of the Filipino staple food.

Philippine Statistics Authority (PSA) data showed that among the country’s regions, Bicol posted the highest inflation rate of 3.3 percent year-on-year in December mainly due to the impact of typhoon “Tisoy” on food prices.

Moving forward, Bautista said that the PSA’s estimates showed that the third tranche of oil excise tax increases—worth P1-1.50 a kilo or liter—which took effect at the start of this year would have only a small impact on the overall inflation environment.

However, Pernia warned that the escalating tension in the Middle East might disrupt global oil supply and lead to a surge in the prices of petroleum products and overall inflation.

“The government should effectively manage expectations at the domestic front and be vigilant against any unwarranted increase in pump prices considering that the last tranche of excise tax increase on fuel products will be implemented this month,” the Neda chief added.

“In the short-term, demand management and alternative sources of petroleum products should be explored, and over the medium to long-term, shifting away from fossil fuel and import dependence should be encouraged,” Pernia said.

Last week, Pernia told the Inquirer that the Philippines might have to look into sourcing oil from Russia amid escalating tensions between the United States and Iran.

Under the TRAIN Law, in case the average Dubai crude oil price based on Mean of Platts Singapore for three months reached or exceeded $80 a barrel, the government may suspend future excise tax increases even as it should “not result in any reduction of the excise tax being imposed at the time of the suspension.”