Inflation likely quickened in October

By Luz Wendy T. Noble, Reporter

INFLATION likely quickened in October amid a continued rise in pump prices and a spike in food costs due to a severe tropical storm, analysts said.

A BusinessWorld poll of 21 analysts yielded a median estimate of 4.9% for the October consumer price index (CPI), which matches the midpoint of the 4.5-5.3% forecast given by the Bangko Sentral ng Pilipinas (BSP).

If realized, headline inflation will exceed the 2-4% BSP annual target range for the third straight month. This will also be faster than the 4.8% seen in September and the 2.5% a year earlier.

The Philippine Statistics Authority will release October inflation data on Nov. 5.

Analysts pointed out that supply issues following last month’s severe tropical storm Maring may have caused food prices to increase at a faster pace.

“Inflation could pick up for the month of October 2021 largely due to the storm damage by Maring that could lead to some temporary increase in food/other commodity prices,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.

“Inclement weather caused substantial crop damage in the month, upending the highland harvest season and damaging fish pens. We note higher prices for beef and fish in the meat basket and a sharp acceleration in the cost for highland vegetables and fruits,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said.

Maring caused agricultural damage and losses worth P1.74 billion as of Oct. 16, according to the Department of Agriculture.

The surge in oil prices also contributed to the faster inflation in October, analysts said.

Global oil prices have surged in recent weeks amid low supply from major oil exporting countries and strong demand. On Friday, Brent crude closed at $84.38 a barrel, “supported by expectations that the Organization of the Petroleum Exporting Countries, Russia and their allies, known as OPEC+, would maintain production cuts,” Reuters reported.

“As a net importer of oil, higher energy and commodity prices will push the Philippines’ headline inflation up in the near term,” Sonia Zhu, associate economist at Moody’s Analytics said.

Data from the Department of Energy showed gasoline, diesel, and kerosene prices have increased by P20.80, P18.45, and P16.04 per liter as of Oct. 26 year to date.

“We believe the recent pickup in world commodity prices, notably energy, supply disruptions and the weak peso will keep inflation elevated in the short term,” Makoto Tsuchiya, economist at Oxford Economics said.

“However, we do not expect this to lead to any substantial second-round effects, such as higher wages, given the ongoing slack in the labor market and the large negative output gap,” he added.

The government is set to distribute P1 billion in cash grants to public utility vehicle drivers in response to soaring pump prices.

However, there are still calls to suspend excise taxes on fuel products, although the Finance department said this may cause up to P131.4 billion in revenue losses in 2022.

Inflation has breached the BSP target since January, except in July when it was at 4%.

In September, the BSP kept its policy rates unchanged even as it raised its inflation forecast for the year to 4.4%. Analysts believe the BSP will keep the current accommodative stance in the next few months to focus on supporting the economy’s recovery.

“The BSP will continue to remain comfortable in allowing the real overnight reverse repurchase rate (nominal minus inflation rate) to remain negative in the coming months,” Alvin Joseph A. Arogo, vice-president and head of equity research division at Philippine National Bank said.

“The central bank continues to recognize that the high inflation is mainly supply-side driven and that the country’s economic recovery is uncertain,” he added.

The BSP will have its next policy-setting review on Nov. 18. Third-quarter gross domestic product data is scheduled to be released on Nov. 9.

The economy rose by 11.8% year on year in the second quarter, although it declined by 1.3% on a quarterly basis.

BSP Governor Benjamin E. Diokno said last week that there are already “concrete signs of economic rebound,” but stressed the need to support the economy to boost recovery. He has also earlier said it appears that there will be no more rate adjustments until the end of 2021.

Meanwhile, Mr. Mapa said the central bank may start to raise interest rates by the first half next year.

“A potential and likely tightening by global central banks may also mean that the BSP will eventually need to adjust policy settings to reflect the ‘new central bank normal,’ regardless of the state of the domestic economy,” he said.

Mr. Diokno has earlier said he sees “more harm” in tightening monetary policy “too soon” than in doing it “too late.”

In the region, central banks in Singapore, New Zealand, and South Korea have started to tighten monetary policy. Meanwhile, the Bank Indonesia and Bank of Japan kept their policy settings unchanged.