Inflation steadies at nine-year peak

By Melissa Luz T. Lopez
Senior Reporter
INFLATION steadied at the fastest pace in more than nine years in October as the cost of food, transport, and utilities remained high, although authorities said overall price increases may have begun to lose steam.
Prices of widely used goods went up by another 6.7% in October, steady from September and surging from 3.1% a year ago, the Philippine Statistics Authority (PSA) reported on Tuesday.
The latest reading matched the median in BusinessWorld’s poll of 15 economists and falls within the 6.2-7% range given by the Bangko Sentral ng Pilipinas (BSP), but is faster than the 6.5% estimate of the Department of Finance.

Core inflation, which excludes volatile items like oil, clocked in 4.9% from 4.7% in September, and was much faster than October 2017’s 2.6%.
In a press briefing, National Statistician Lisa Grace S. Bersales said food and non-alcoholic drinks accounted for 3.7 percentage points of headline inflation, but noted that overall increase in this segment slowed to 9.4% last month from 9.7% in September.
Still, price of rice — which has a major 9.6% weight in the theoretical basket of basic goods used to compute inflation — rose by a faster 10.7% versus 10.4% previously.
Expenses for housing, water, electricity, gas and other fuels rose by a faster 4.8% from 4.6%, while transport costs went up by 8.8% compared to eight percent the month before.
Ms. Bersales noted that month-on-month inflation eased to 0.3% from 0.9% previously, saying: “There seems to be a slowing in the increase in prices.”
Inflation eased for the second straight month in Metro Manila to 6.1%, while the pace steadied at 6.8% from the preceding month outside the National Capital Region. Eleven of the country’s 17 regions bared inflation rates that outpaced the national rate: Bicol (9.9%), MIMAROPA (nine percent), Ilocos (8.6%), Autonomous Region in Muslim Mindanao (8.3%), Cagayan Valley (eight percent), SOCCSKSARGEN (7.9%), Davao (7.8%), Western Visayas (7.7%), Norther Mindanao and Zamboanga Peninsula (each with 7.6%), and Eastern Visayas (6.9%).
Ms. Bersales noted that typhoon Mangkhut, locally called Ompong, that hit Luzon’s farms on Sept. 15 — causing P26.77 billion worth of crop damage — was likely partly to blame for food prices in the provinces rising by 9.8% overall versus 7.8% in Metro Manila.
In a joint statement, economic managers of President Rodrigo R. Duterte said the latest data show that inflation is on a “downward path” as non-tariff steps taken by the Executive to clear market bottlenecks are taking effect.
“Concerted government efforts, as prescribed in Administrative Order 13, to tame the prices of goods in the previous months have finally resulted in expected outcomes,” they said.
Meat prices saw a slower 7.5% overall hike last month from September’s 8.4%, while vegetables’ price hike also softened to 15.8% from 21%. On the other hand, fish prices rose by a faster 13.8% from 13.4% previously.
Noting that price pressures are “finally moderating”, Bangko Sentral ng Pilipinas Governor Nestor A. Espenilla, Jr. told reporters in a mobile phone message that October’s slowdown “augurs well for a return to inflation target by 2019.”
“The Monetary Board will take into account these and other incoming data including GDP at its next policy meeting when it determines if there’s still need for further policy rate adjustments.”
Last week, Mr. Espenilla hinted of a possible “moderate” tightening move during the board’s Nov. 15 policy meeting, which would follow rate hikes totaling 150 basis points (bp) since May. In contrast, Monetary Board Member Felipe M. Medalla has said that monetary authorities may pause tightening should the month-on-month inflation momentum show signs of easing.
October’s pace brought year-to-date inflation to 5.1%, well past the BSP’s 2-4% target though below the full-year forecast of 5.2%.
Authorities are looking to bring inflation below four percent in 2019, banking on the replacement of import quotas on rice and liberalizing the staple’s importation would slash retail prices by P7 per kilogram and slash 0.7 percentage point off the inflation rate.
Market watchers are divided on whether inflation has peaked, though some expect fresh tightening from the central bank to temper price expectations further.
ANZ Research and HSBC Global Research analysts are convinced that inflation is on its way down, but Nomura economists said it is “uncertain” whether the pace has finally peaked, as authorities hope.
Guian Angelo S. Dumalagan, market economist at the Land Bank of the Philippines, said there may be room to keep rates steady in light of October’s figure.
“The stabilization in annual inflation and the month-on-month deceleration in consumer prices could convince the BSP to refrain from hiking its policy rates again in November 2018,” he said.
“However, expectations of another rate increase from the US Federal Reserve next month could prompt local monetary officials to follow suit with a 25- to 50-bp hike in order to protect the peso and anchor inflation expectations.”
Mr. Dumalagan pointed out that the recovery of the peso versus the dollar may have also helped ease price movements last month, and could help inflation to “gradually decline” moving forward.
Michael L. Ricafort, economist at the Rizal Commercial Banking Corp., noted that a softer 25bp rate increase may be announced by the BSP next week, but that a no-hike scenario may still be an option amid lower prices of food, rice and oil.
For Emilio S. Neri, Jr., lead economist at the Bank of the Philippine Islands, another rate hike is needed to “keep inflationary expectations well-anchored.” He said a third 50bp increase would be better, but may be scaled down to 25bp if economic growth “disappoints.”
The PSA will announce third-quarter gross domestic product data on Thursday.