Inflation picks up

PRICES of consumer goods rose at their fastest pace in five months in February on a spike in food, tobacco and alcoholic beverage indices, the National Statistics Office (NSO) reported yesterday.

But February’s 3.4% headline inflation rate, which was also a big jump from 2.7% the previous year and higher than the 3.3% median in a BusinessWorld poll of analysts late last week, fell within the central bank’s 2.8-3.7% estimate for that month and 3-5% full-year target.

Core inflation, which strips out volatile food and energy prices, went up to 3.8% from 3.6% in January.

The central bank downplayed February’s spike.

“The turnout brings the year-to-date average inflation to 3.2%, still very close to the lower bound of the government’s target range of 3-5%,” Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco, Jr. said in a text message yesterday.

“This reflects that inflation remains manageable.”

The central bank forecasts full-year inflation average to ease to 3% this year from 3.2% in 2012.

In a statement, NSO attributed the February result to “faster annual gain in the heavily weighted food and non-alcoholic beverages index and the double-digit annual increment in alcoholic beverages and tobacco index.”

Annual price hike in the food and non-alcoholic beverages index inched up to 2.9% last month from 2.3% in January, while that for alcoholic beverages and tobacco index picked up to 29% from 17.3%.

In separate e-mails yesterday, Trinh D. Nguyen, regional economist at HSBC, and Mitzie P. Conchada, economist at the De La Salle University, both cited as a key factor for February’s spike the impact from the start last Jan. 1 of enforcement of higher excise taxes on tobacco products and alcoholic drinks.

Emilio S. Neri, Jr., chief economist at Bank of the Philippine Islands, said via e-mail that “the acceleration was expected owing largely to base effects and upticks in petroleum prices.”

Cid L. Terosa, senior economist at the University of Asia and the Pacific, said via text: “Election campaign-related spending also exerted upward pressures on prices, but I believe the BSP will still maintain its policy stance in the meantime.”

Jeff Ng, economist at Standard Chartered Bank in Hong Kong, said also in an e-mail that the increase in inflation was “no surprise” since oil prices rose for much of February, adding: “we do not expect any changes in the key policy rate on the March 14 meeting.”

HSBC’s Ms. Nguyen said “after cutting the SDA [special deposit account] rates by 50-65 basis points in January, the higher-than-expected acceleration in prices will motivate the central bank to keep main policy rates as well as the SDA rate on hold at the March 14 meeting.”

Mr. Tetangco assured that the central bank remained watchful of price movements, such as pending petitions for utility rate and wage increases. On the global front, it will monitor economic recovery and their possible impact on international commodity prices.

“We will make adjustments to our monetary policy settings, as appropriate, to keep the public’s inflation expectations in line with our inflation target,” he said.

Policy interest rates remain at record lows of 3.5% and 5.5% for overnight borrowing and lending, respectively.

At the same time, however, he signaled that another cut in SDA rates was on the table, given the latest inflation data. “A further cut in the SDA rate cannot be ruled out. But any further action on the SDA and its operations will depend on data coming from the advanced economies as well as price action and activities of both local and foreign players in our domestic financial markets among others,” he said.

In January, the BSP slashed SDA rates to 3% from slightly over 3.5% in an attempt to push out more money into the economy for consumption and investment. An estimated P1.8 trillion is parked in the deposit facility. — Judy Dannibelle T. Chua Co and Diane Claire J. Jiao
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