Consumer prices rose faster for the fourth straight month to a two-year record in January after food and transport costs spiked, according to the local statistics agency.

The Philippine central bank in a separate statement said inflation could be better tempered through non-monetary policies.

Headline inflation quickened to 4.2% last month, faster than 3.5% in December and 2.9% a year earlier, the Philippine Statistics Authority (PSA) said in a statement on Friday. It was also the fastest since 4.4% in January 2019.

January inflation was higher than the 3.6% median estimate in a BusinessWorld poll of 16 economists last week.

It also exceeded the estimate of 3.3-4.1% for the month and 2-4% annual target of the Bangko Sentral ng Pilipinas (BSP).

“The projected uptrend in inflation is seen to be temporary,” BSP Governor Benjamin E. Diokno said.

“The sources of near-term inflation pressures are supply-side shocks in nature that should not require a monetary policy response unless they lead to further second-round effects,” he added.

The government should instead ease domestic supply constraints, Mr. Diokno said, adding that average inflation would probably settle within the central bank’s 2-4% target.

The statistics agency traced the faster increase to the heavily weighted food and nonalcoholic beverages, whose prices increased by 6.2% in January from 4.8% a month earlier.

Other major contributors were transport costs, which rose by 8.6%, and higher prices of restaurant and miscellaneous goods and services that grew by 3%.

Inflation was tempered by the slower increase in the prices of alcoholic beverages and tobacco, which eased to 11.7% from 12.2% in December; furnishing, household equipment and routine house maintenance, which slowed to 2.9% from 3.3%; and recreation and culture, which slowed to 0.7% from 0.6%.

“Our priority right now is to ensure that food supply is adequate so that households affected by COVID-19 and the quarantines will not be doubly affected by the increase in food prices,” Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua said in a statement.

“In the interim, allowing more importation of key agricultural products, while adhering to strict safety protocols to prevent the entry of contaminated products, will help augment supply and manage inflation,” he added.
Core inflation, which excludes volatile prices of food and fuel, quickened to 3.4% last month from 3.3% in December and January 2020.

Food inflation accelerated to 6.6% from 4.9% in the previous month, buoyed by double-digit increases in meat and vegetable prices.

January inflation for meat was 17.1% from 10% in December, while vegetable prices surged by 21.2% from 19.7% in December.

Meanwhile, tricycle, jeepney and bus fares increased by 46.7%, 6.4% and 4.5, pushing transport costs up. On the other hand, fuel prices fell by 9.3% from 10.6% in December.

Inflation in the National Capital Region (NCR) quickened to 4.3% last month from 3.2% in December and 2.7% a year earlier.

Inflation for the bottom 30% income households hit 4.9%, faster than 4.3% in December and 2.3% a year ago. This was the highest in two years, or since 5.2% in January 2019.

NO RATE CUT

National Statistician Claire Dennis S. Mapa told an online news briefing the inflation uptick in the capital region and for the poor had been mainly caused by faster increases in prices of food especially fish, meat, vegetables and fruits.

Nicholas Antonio T. Mapa, a senior economist at ING Bank N.V. Manila, traced the continued increase in food prices to typhoons that devastated parts of Luzon in the past quarter, aside from the spread of African Swine Fever.

“This was the first breach since 2018 when inflation surged to a high of 6.7% driven also by rising food prices and higher transport costs,” he said in a note.

“We expect inflation to remain elevated in the coming months with base effects and persistent cost side pressures to force the headline close to or above the 4% level,” he added.

The central bank was unlikely to cut key policy rates at its meeting next week despite the faster inflation, Mr. Mapa said.

“We expect BSP to refrain from adjusting policy in the near term as Diokno provides monetary support to the economic recovery, with monetary authorities hoping to ride out this latest breach until supply conditions normalize in the coming months,” he added.

Inflation is likely to continue to rise while supply issues were being addressed and global oil prices rise, said Alex Holmes, Capital Economics’ economist for Asia.

He said this would force BSP to keep policy rates unchanged in the near term, but the easing cycle might continue toward the end of the year to support economic recovery.

“We still expect more rate cuts later in the year,” Mr. Holmes said in a note. “The rise in inflation should prove temporary. What’s more, the economy is still in need of more support,” he added.

“A failure to contain the virus, economic scars from the pandemic and lackluster fiscal support mean the recovery would continue to underwhelm in the quarters ahead,” Mr. Holmes said.

Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said any second-round inflation effects in the coming months could trigger a rate hike.

“A new record-low local policy rate of 2% is now unusually below the inflation rate, which is currently higher at 4.2%, that results in net negative interest rates, thereby making any further cut in policy rates more challenging at the moment,” he said.

The country’s manufacturing output continued to decline for the 10th straight month in December amid a coronavirus pandemic, the Philippine Statistics Authority (PSA) reported on Friday.

Preliminary results of the agency’s latest Monthly Integrated Survey of Selected Industries (MISSI) showed factory output, as measured by the volume of production index (VoPI), further declined by 2.8%, slower than the revised 8.6% drop in November and 7.3% decline a year earlier.

It was the softest decline in the 10 months since the government locked down many parts of the country to contain the pandemic.

This brought the average volume of production index to a contraction of 10.3% for 2020, worse than 8.4% drop in 2019.

The PSA traced the slower December decline to annual growth posted that month in five of 20 industry groups, namely paper and paper products (26.8%), chemical products (7.5%), electrical machinery (5.7%), food manufacturing (5.4%) and rubber and plastic products (4.9%).

Meanwhile, the value of production index (VaPI), a similar composite indicator in the survey, fell by 5.1% year on year in December from an 11.5% downturn in November. This was the 10th straight month for the contraction, though the slowest since January 2020.

The average value of production index shrank faster by 13.9% in 2020, worse than the 6.9% decline in 2019.
The average capacity utilization — the extent at which industry resources are used in producing goods — slipped to 72.8% in December from 75.6% in the previous month.

Only five of 20 industry groups posted at least 80% average use rate, namely machinery except electrical (88.3%), textiles (86.2%) and nonmetallic mineral products (82.7%).

The seasonal increase in spending and economic activities could have also helped the slower contraction in factory output in December, Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp. said in a note.

A possible easing in Metro Manila’s lockdown could help further reopen the economy, which may lead to a pickup in manufacturing activities, he said.

The government will start offering three-year retail Treasury bonds next week to raise at least P30 billion from the local debt market, the Treasury bureau said on Friday.

In a notice posted on its website, the agency said it would sell at least P30 billion in three-year retail bonds for three weeks starting Feb. 9 until March 4, or if closed earlier.

The bureau also opened the bond exchange offer where bondholders of FXTN 07-57, FXTN 10-53, RTB 03-09, RTB-10-03 and FXTN 10-55 can swap their current securities with the new retail bonds.

With the scheduled three-week offer of the RTB-25 due in 2024, the Treasury canceled the upcoming auction on Feb. 16 for three-year Treasury bonds.

The government offers retail Treasury bonds annually to encourage small retail investors to invest with higher returns than prevailing market rates. These are also considered low-risk investments because they are backed by the state.

There would probably be strong demand for the retail bonds because the market remained awash with cash, a bond trader said in a Viber message.

The bonds would be sold in denominations of at least P5,000, the Treasury bureau said.

The coupon will be determined during the rate-setting auction on Tuesday, and interest payments will be made quarterly.

Last year, the bureau offered the retail bonds twice, raising P310.8 billion from the sale of three-year bonds in February and an all-time high of P516.3 billion from five-year securities.

The government is looking at raising P3 trillion this year from domestic and external lenders to help fund its budget deficit that is expected to hit 8.9% of economic output.

Meanwhile, the Bangko Sentral ng Pilipinas (BSP) fully awarded the P120 billion 28-day bills it offered on Friday on robust liquidity.

Total bids reached P148.81 billion, making the auction 1.24 times oversubscribed, the central bank said in a statement.

The short-term debt fetched a weighted average interest rate of 1.6124%, down by 1.27 basis points from 1.6251% last week.

“The results of the BSP bill auction reflect very ample liquidity in the financial system,” central bank Deputy Governor Francisco Dakila, Jr. said in the statement.

“Looking ahead, the BSP’s monetary operations will remain guided by its assessment of liquidity conditions and market developments,” he added.

The central bank had been making full awards since it started selling its own securities in September. Yields ranged from 1.6% to 1.6235%, narrower than 1.6 to 1.63% at the previous auction.

The rates continued to decline despite the faster inflation in January, Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp. said in a text message.