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Economist: BSP’s January ‘18 forecast may worry market

An economist of ING Bank Manila said the Bangko Sentral ng Pilipinas’ (BSP) inflation forecast for January 2018, at 3.5 to 4 percent, may concern the market since the upper end is already higher than the central bank’s 3.2 percent average projection for the year.

In a research note, ING Bank Manila senior economist Joey Cuyegkeng said the central bank “surprised” market participants with the inflation range forecast, citing that ING’s projection for the month is lower at 3.4 percent.

The forecast range for the first month this year is higher than the 3.3 percent December 2017 level and the full-year average of 3.2 percent, which in turn is within the 2017-19 target.

The central bank, in a statement, traced the higher level of inflation forecast for January to increases in fuel prices overseas that impact on the domestic oil prices.

Relatively, the first package of Tax Reform for Acceleration and Inclusion (TRAIN), which cuts workers’ income tax rates and makes their PHP250,000 annual income tax-free but hikes excise taxes on fuel and sweetened beverages, among others, took effect last January 1.

“We expect a moderate impact of higher excise taxes from the tax reform package in the first month of implementation,” Cuyegkeng said.

However, the economist said that with the BSP’s higher inflation forecast for the first month this year “the market may become worried that inflation will accelerate faster than expected in the coming months.”

He also said that “second round effects are still to be determined in March-June.”

“Significant second-round effects could cause inflation to breach the target range of 2 to 4 percent,” he said.

The Philippine Statistics Authority (PSA) is scheduled to report the January 2018 inflation rate on Tuesday and Cuyegkeng said that if the level is within the central bank’s projection it “could raise inflation expectations which may spur BSP to tighten as early as the March meeting.”

“Our base case is for a rate hike at the May meeting,” he added. PNA

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