An uptick in fares and cost of transport may have also contributed to faster inflation in October. — PHILIPPINE STAR/MICHAEL VARCAS

By Luz Wendy T. Noble, Reporter

INFLATION may have slightly picked up in October due to a rise in food prices and transport costs, as well as the impact of base effects.

A poll of 15 economists by BusinessWorld last week yielded a median estimate of 2.4%, close to the higher end of the 1.9-2.7% forecast given by the Bangko Sentral ng Pilipinas (BSP) and well within the 2-4% target this year.

If realized, the median estimate will be a tad faster than 2.3% in September and 0.9% in October 2019. The BSP’s latest average inflation forecast for this year is at 2.3%

Analysts’ October inflation rate estimates

The Philippine Statistics Authority will release October inflation data on Thursday.

Analysts said upside risks from higher prices of some food groups might have caused inflation to slightly quicken last month.

“The recent typhoons could affect the uptick of prices of some commodities such as vegetables. Prices of meat items such as pork and chicken remain high due to limited supply,” said Mitzi Irene P. Conchada, an economist from De La Salle University Manila.

Two typhoons hit the country in late October. The Department of Agriculture  said agri-fishery damage from typhoons Pepito and Quinta reached P67.57 million and P2.2 billion, respectively. Hardest-hit areas include some provinces in Central Luzon, Calabarzon (Cavite, Laguna, Batangas, Rizal, Quezon), and the Bicol Region.

The agency last week raised the suggested retail price (SRP) for various cuts of pork sold in Metro Manila to account for shortages caused by the African Swine Fever. The new SRP for pork shoulder, known as kasim, is now at P260 per kilogram (from P230), while the SRP for pork belly, or liempo, was set at P280 per kilogram (from P250).

An uptick in fares and transport costs may have also contributed to faster inflation in October as travel restrictions were eased and more economic activities restarted, analysts said.

“Transport costs are expected to have provided some upward contribution as well as mobility, especially from public transport,” Security Bank Corp. Chief Economist Robert Dan J. Roces said.

He added that higher electricity rates in areas served by Manila Electric. Co. (Meralco) could be another upside risk to inflation. October power rates rose by P0.1212 per kilowatt-hour (kWh) to P8.55 per kWh from the previous month, Meralco said.

Other factors such as base effects and education expenses in October may have also led to quicker inflation, said ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa.

But a slightly faster inflation will not be enough to compel the central bank to further cut rates, according to analysts.

“A record low local policy rate of 2.25% would still remain unusually below the inflation rate that results in net negative interest rates, thereby making any further cut in policy rates more challenging at the moment,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

“BSP will respond to the third-quarter GDP number rather than the inflation at this point. We expect that if the third-quarter GDP will remain worse than -8% to -9%, then the BSP will likely cut overnight policy rates further,” Sun Life Financial Economist Patrick M. Ella said.

The economy shrank by a record 16.5% in the second quarter as it succumbed to the impact of the tight lockdown during the period.

While a less steeper GDP contraction is expected in the third quarter as the economy gradually reopened, the government estimates GDP to fall by 4.5% to 6.6% this year. The official third-quarter GDP data will be released on Nov. 10.

Meanwhile, Alex Holmes, an economist from Capital Economics, expects the third-quarter growth data to underwhelm, adding that the BSP may be “too upbeat” on its economic outlook.

“We continue to expect another cut by the BSP before the end of the year. Just a 25-bp (basis point) cut, taking the policy rate down to 2%,” Mr. Holmes said.

The Monetary Board will hold its policy setting on Nov. 19, before its final meeting for the year on Dec. 17.

The BSP has slashed key policy rates by 175 bps this year to support the economy amid the pandemic. This has brought down the overnight reverse repurchase, lending, and deposit facilities to record lows of 2.25%, 2.75%, and 1.75%, respectively.

While the policy-setting body has opted for a “prudent pause” in its August and October meetings, BSP Governor Benjamin E. Diokno has said that the central bank continues to have room for further easing when the need arises. He said this would allow previous actions to be fully absorbed by the financial system.

Mr. Diokno has also said they would carefully assess the timing to unwind aggressive policy measures done in light of the crisis to prevent serious repercussions on the economy.