March inflation climbs to 6-month high

By Bernadette Therese M. Gadon, Researcher

PHILIPPINE INFLATION climbed to a six-month high in March as food, utilities, and transport costs rose due to the spike in global oil prices after Russia’s invasion of Ukraine.

Preliminary data from the Philippine Statistics Authority (PSA) showed annual headline inflation accelerated to 4% last month from 3% in February, but slightly slower than the 4.1% print in March last year.

The March inflation was fastest since the 4.2% inflation in September 2021. It matched the 4% print in October last year and the 4% median in a BusinessWorld poll conducted last week.

It was also near the upper end of the 3.3-4.1% forecast range of the Bangko Sentral ng Pilipinas (BSP) for March.

Inflation, meanwhile, picked up by 0.9% on a monthly basis.

For the first quarter, inflation settled at 3.4%, within the 2-4% central bank’s inflation target band for 2022 but below the full-year forecast of 4.3%.

The central bank said the average inflation this year could breach the upper end of its target band due to surge in global crude oil prices.

However, it projects that inflation will decline and settle within the target band at 3.6% by next year.

“Inflation expectations have likewise risen, but continue to be anchored to the 2-4% target band,” BSP Governor Benjamin E. Diokno said in a Viber message to reporters.

The BSP chief noted Russia’s invasion of Ukraine is now a “significant headwind” to the global economic recovery.

“The Russia-Ukraine conflict could affect the Philippines through slower world GDP (gross domestic product) growth, higher crude oil prices, higher world non-oil prices, and potential second-round effects on inflation through transport fares, wages, and food prices,” he said.

“Under these circumstances, the BSP will closely monitor the emerging risks to the outlook for inflation and growth, and remain vigilant against possible second-round effects from supply-side pressures or any shifts in the public’s inflation expectation,” Mr. Diokno said.

Global crude oil prices have surged above $100 a barrel since Russia invaded Ukraine in late February due to supply concerns. Russia is the world’s second-largest exporter of crude oil.

Since the start of the year, local prices of gasoline, diesel, and kerosene posted a net increase of P16, P26, and P24.10 per liter, respectively.

PSA data showed inflation of heavily weighted food and non-alcoholic beverages picked up to 2.6% in March from 1.2% in February.

Housing, water, electricity, gas, and other fuels rose to 6.2% from 4.8%, while transport quickened to 10.3% from 8.8%.

The PSA also reported electricity and liquified petroleum gas (LPG) prices rose 18% and 26.5%, respectively, in March, from 13.5% and 17.6% in February, respectively.

Meanwhile, the inflation as experienced by the bottom 30% income households — at constant 2012 prices — quickened to 3.3% last month from 2.7% in February, but lower than 5.5% in March 2021.

Year to date, inflation as experienced by poor households settled at 3%.

The statistics agency targets to release the 2018-based inflation data for the bottom 30% by December 2022, as soon as it finishes conducting its commodity and outlet survey, National Statistician Claire Dennis S. Mapa said at a press briefing on Tuesday.

The nationwide commodity and outlet survey provides the basis for the identification of the market basket at different income levels — upper 70% and bottom 30%. It was last conducted in 2008.

The National Economic and Development Authority, for its part, said the government has taken steps to address the inflationary pressures brought by the Russia-Ukraine conflict.

“We have been proactively monitoring the impact of the Russia-Ukraine conflict,” Socioeconomic Planning Secretary Karl Kendrick T. Chua said in a statement.

Analysts said that March marks the start of a steady increase in consumer prices in the coming months.

Security Bank Corp. Chief Economist Robert Dan J. Roces said in an e-mail interview that the continued rise in fuel prices may spill over to fares and wages.

“Based on the current trajectory, headline inflation may exceed the central bank’s target band beginning this second quarter — which is likely the peak quarter — before tempering and remaining near the 4.0% area for the balance of the year,” Mr. Roces said.

“As there is scope for oil prices to continue to remain elevated with more forthcoming sanctions against Russia, this points to upside risks to the inflation outlook, which we currently see averaging 4.2% for the year,” he added.

China Banking Corp. Chief Economist Domini S. Velasquez said oil prices have been increasing even before the geopolitical tension between Russia and Ukraine.

“We suspect higher input costs, such as that of elevated fuel prices, have already trickled to food inflation, such as in the prices of meat, fish, and vegetables,” she said in a Viber message.

“Continued elevated global commodity prices, worsening of supply chain bottlenecks due to lockdowns in China, secondary round effects of fuel prices on food products and manufactured goods will push up inflation next month,” she added.

In a press release, Bank of the Philippine Islands said: “Upside risks to inflation continue to build up and most likely we have not seen the peak yet.” — with inputs from Luz Wendy T. Noble