Poll sees fresh multiyear-high inflation

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WORKERS unload from a truck newly arrived sacks of rice from Vietnam at a National Food Authority warehouse in Manila in this Aug. 12, 2010 photo. Government critics have blamed late importation of rice for recent inflation spikes. — AFP

By Melissa Luz T. Lopez, Senior Reporter

INFLATION likely zoomed to a fresh multi-year high in August due largely to higher food costs, analysts said in a BusinessWorld poll, boosting the case for another rate hike this month to douse surging prices.

A poll among 14 economists late last week yielded a median inflation estimate of 5.9%, which if realized will mark another high coming from July’s 5.7% and from 2.6% in August 2017.

This also matches the estimate given by the Bangko Sentral ng Pilipinas (BSP) Department of Economic Research on Friday, in the middle of a 5.5-6.2% range. This is the first time the BSP gave a specific figure for headline inflation ahead of the release of official data due on Wednesday.

Analysts point to thin rice supply as the main culprit, worsened by heavy rains that damaged crops. Food items account for more than a third of the consumer basket used in tracking overall price movements.

“Retail prices of rice (up by about 10% year on year) and sugar (up by about 15-20% since early 2018) increased recently amid shortage in local supply. Prices of other food items also increased after storms/floods in recent weeks,” said Michael L. Ricafort, economist at the Rizal Commercial Banking Corp.

Analysts’ August inflation rate estimates

Higher global crude oil prices also added to inflation pressures last month alongside a rise in electricity rates, the analysts added.

The impact of the first of up to five planned tax reforms continued to be felt in August, with second-round effects still sending price shocks eight months into its implementation.

“The continued effect of the TRAIN (Tax Reform for Acceleration and Inclusion) law, which raised the prices of fuel, automobile, mineral, and coal, as well as the further weakening of peso against the greenback may have also boosted local inflation,” said Guian Angelo S. Dumalagan, market economist at Land Bank of the Philippines.

Last week, BSP Governor Nestor A. Espenilla, Jr. said he expected prices of basic goods to have climbed even faster in August, with the pace, however, not breaching 6%. He added that TRAIN-related pressures are “slowly tapering off.”

Still, some analysts gave higher forecasts while others were unconvinced that August had seen the peak.

“I’m hoping that this will be the highest this year, but prices of oil and other food items such as rice have not yet stabilized so we might still experience higher inflation but at a slower rate,” said Mitzie Irene P. Conchada, associate dean at the De La Salle University School of Economics.

Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, said he sees the peak occurring some time next quarter.

“As such, the BSP may further consider raising interest rates in its September meeting,” Mr. Asuncion said.

“Although September is the start of the harvest season and is expected to influence a downward push on rice prices, we anticipate a more realistic and practical impact on supply and actual prices by October.”

Prices of widely used goods and services surged by an average of 4.5% as of end-July, well above the BSP’s 2-4% full-year target range for 2018. The central bank, which sees full-year 2018 inflation averaging 4.9%, expects the pace to return to target next year.

The central bank has blamed supply-side factors such as surging global oil prices, additional excise taxes on certain products which took effect this year, as well as weather disturbances that disrupted food supply — factors which are beyond the scope of the BSP’s policy tweaks.

Still, the BSP fired off its strongest response in a decade by raising interest rates by 50 basis points (bps) in its Aug. 9 policy review. That pushed yields 100 bps higher so far this year, with the benchmark yields now ranging 3.5-4.5%.

“Monetary Board will likely hike policy rates by 25 bps if 6% inflation is exceeded,” Victor A. Abola, economist at the University of Asia & the Pacific, said as he gave a 6.1% estimate.

Ildemarc C. Bautista, vice-president and head of research at the Metropolitan Bank & Trust Co., cited the need for another 25-bp hike to “address second-round effects.”

The BSP will review its policy stance for the sixth time this year on Sept. 27. Mr. Espenilla said monetary authorities have “kept the door open” for future rate adjustments in a bid to ease price pressures, with the view that the economy can still absorb further tightening moves while keeping the growth momentum intact.





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