6 Mar 2021 – Inflation hits 2-year high as meat, oil prices spike

by Louise Maureen Simeon, Lawrence Agcaoili (The Philippine Star), 6 Mar 2021

MANILA, Philippines — Inflation quickened for the fifth straight month in February to a new two-year high of 4.7 percent as prices of meat and oil products continue to rise, the Philippine Statistics Authority (PSA) reported yesterday.

Headline inflation – the rate of increase in the consumer price index – further accelerated from 4.2 percent in January and was the fastest increase since the 5.1 percent recorded in December 2018.

The continued uptick in inflation was largely caused by the spike in prices of food and non-alcoholic beverages at 6.7 percent, as well as transport costs.

In particular, meat inflation soared to 20.7 percent from 17.1 percent in January as the effects of the African swine fever (ASF) continued to pull down supply. Price increases were also faster in vegetables and fish.

The government’s move to impose a 60-day price cap on pork and chicken last month did little to tame inflation.

“We saw prices of pork decrease in the National Capital Region because of the price cap, but as a result, prices went up in areas outside of Metro Manila as the supply was reduced. This impacted the overall increase in the prices,” PSA chief Dennis Mapa said in a briefing yesterday.

In fact, the average price of fresh pork with bones went down to P299 per kilogram last month from P338 in January. However, it went up to P281 a kilo from P264 in areas outside Metro Manila.

Average price of pure meat also decreased to P323 from P368 in the metro but prices surged to P317 from P300 a kilo in the provinces.

The Bangko Sentral ng Pilipinas, for its part, said the latest inflation outturn is consistent with its assessment of a transitory uptick in inflation for the first half of 2021, reflecting the impact of weather-related disturbances, ASF, higher global oil prices, along with positive base effects.

“The overall balance of risks to future inflation continues to lean towards the downside owing mainly to the continued uncertainty caused by the pandemic on domestic and global economic activity,” BSP Governor Benjamin Diokno said.

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

Meanwhile, transportation costs, which had a 18.8 percent share to the headline rate, accelerated to 10.4 percent as fares for tricycles, jeepneys and buses continued to rise because of pandemic-related limitations in carrying capacity.

Also contributing to the uptick were increases in the prices in restaurants and miscellaneous goods and services, which had a nine percent share to the headline rate. This was driven by meals, articles for personal hygiene, and barbershop services.

It should be noted that the rise in inflation was quicker in areas outside NCR at 4.8 percent versus the 4.1 percent in the capital. This is still the effect of pork supply being transported from ASF-free zones in efforts to stabilize prices.

“Authorities must work double time to address these bottlenecks to calm these inflationary pressures with accelerating prices an additional burden to Filipinos already challenged by the ongoing recession,” ING Bank senior economist Nicholas Mapa said.

He added that inflation should remain elevated in the first half of the year with energy prices heading north which, in turn, would keep transport costs elevated.

“BSP will be hard pressed to manage inflation expectations,” Mapa said.

Rizal Commercial Banking Corp. chief economist Michael Ricafort, for his part, said the latest spike in inflation would be better addressed by non-monetary measures to increase the supply and lower prices of local food, pork, and other agricultural products amid ASF.

“Risk of any second-round inflation effects would be monitored before any changes on monetary policy, which would have no impact on supply-side inflation due to both local and global factors such as higher prices of oil and other major global commodities that are beyond the country’s reasonable control,” Ricafort said.

“However, any increase in the prices of other goods and services in the economy, or second-round inflation effects, would potentially lead to some modest monetary tightening by way of a slight hike in policy rates to better manage both inflation and inflation expectations from spiralling further, if needed,” he said.

The BSP chief already pointed out that supply-side shocks are best addressed by non-monetary interventions that ease domestic supply constraints.

“Currently, direct measures are being pursued by the national government to enhance the availability of affected commodities,” Diokno said.

The BSP has emerged as one of the most aggressive central banks in the world after cutting interest rates by 200 basis points to an all-time low of two percent and lowering the reserve requirement ratios (RRR) of banks.

Diokno said the Monetary Board would consider recent price developments that could influence the outlook for inflation along with evidence of second round effects in its assessment of the monetary policy stance on March 25.

Further, Ricafort noted that the local economy does not need high inflation right now especially for households that have been hit hard by the pandemic in terms of lower income and employment.

Moving forward, he said the onset of the summer season and the start of harvest would boost local food supply and help bring down prices of agricultural commodities, which could somewhat ease headline inflation.

“Other offsetting factors that would help ease inflation include the 60-day price control as well as the increased importation of pork in the coming months,” Ricafort said.

The BSP also reiterated there is no need for an immediate monetary policy response as inflation is seen returning back to the two to four percent target over the policy horizon.

“The projected upward trend in inflation is seen to be temporary, driven primarily by supply side factors. The overall balance of risks to future inflation continues to lean toward the downside owing mainly to the continued uncertainty caused by the pandemic on domestic and global economic activity,” Diokno said.

He said the central bank’s Monetary Board would consider carefully recent price developments that could influence the outlook for inflation along with evidence of second round effects during the rate setting meeting scheduled on March 25. –