Inflation seen to peak in Q3

MANILA, Philippines - Inflation rate is seen to hit its peak this quarter, partly due to port congestion, according to a joint publication of First Metro Investment Corp. (FMIC) and the University of Asia and the Pacific (UAP).

In the latest issue of The Market Call, FMIC-UAP said the consumer price index (CPI) is likely to accelerate to 4.8 percent in July to September, half a percentage point higher than the first quarter figure due to the delayed importation of rice and surging costs as a result of the day-time truck ban implemented in Manila.

The expanded daytime ban on trucks in February doubled the turnaround time for vehicles, causing congestion in Manila’s ports because of non-delivery of goods meant for consumption and production.

Manila’s ports account for about a third of the country’s inbound and outbound cargo.

Aside from spiraling prices of basic commodities, trucking costs likewise shot up, pushing inflation to a  nearly three-year high in July to 4.9 percent.  This was also higher than the forecast made by the Bangko Sentral ng Pilipinas.

The central bank expects 2014 inflation to average 4.33 percent from 4.4 percent previously.  The inflation target for next year is two to four percent.

FMIC-UAP, however, expects inflation to ease in the fourth quarter as rice supply and imports normalize.

“We expect a reversal in fourth quarter as rice harvest and imports flood the market and cooler heads sort out the container and ship congestion caused by the limited trucks that can remove containers from the international port of Manila,” FMIC-UAP said.

The assumption was also based on expectations that crude oil prices would slide for the rest of the year despite the lingering tensions in Iraq and Ukraine.

FMIC-UAP likewise expects the economy to revert to the seven percent growth pace in the second half given the smooth implementation of reconstruction plans for areas hit by Super Typhoon Yolanda.

Public spending is also seen picking up in the second half as the government remains intent on its commitment to achieve sustainable inclusive growth.

 “Despite a temporary slowdown in public spending in the second quarter due to the commotion over the unfavorable Supreme Court ruling on the government’s Disbursement Acceleration Program (DAP), we expect it to get back on track in the second half,” FMIC-UAP said.    

The government, particularly the Department of Finance, is confident that the Philippine economy would pick up more speed in the medium-term given its robust macroeconomic fundamentals and liability management strategies.

Finance Undersecretary Gil Beltran said the Philippine economy has the capacity to grow faster than the 7.2 percent recorded last year without or without the boost from election-related spending.