by Louise Maureen Simeon – The Philippine Star, 6 Oct 2021
MANILA, Philippines — Inflation unexpectedly eased in September on lower food and transport costs, but the average rate remained above government targets, with upside risks of other commodities contributing further to higher prices.
Headline inflation, the rate of increase in the consumer price index, eased to 4.8 percent in September from the 32-month high 4.9 percent in August. This, however, is still higher than the 2.3 percent print in the same month last year.
The inflation figure was also below market expectations of at least five percent for the month.
The latest print settled at the lower end of the 4.8 to 5.6 percent target band of the Bangko Sentral ng Pilipinas (BSP) for the month.
However, year-to-date inflation at 4.5 percent remained over the central bank’s 4.4 percent target for 2021.
In a briefing yesterday, Philippine Statistics Authority (PSA) chief Dennis Mapa said the main source of slowdown in inflation last month was transport, which accounted for 55.8 percent of the overall downtrend.
Transport inflation eased to 5.2 percent from 7.2 percent on lower fares of tricycles, jeepneys and buses.
“We saw that this is mainly due to base effects. Last year, the level of tricycle and jeepney fares in Metro Manila was high. Now it is at P18.60 per passenger. Fares were also down in many provinces,” Mapa said.
The heavily weighted food and non-alcoholic beverages, which shared almost 40 percent to the overall easing of inflation, slowed to 6.2 percent from 6.5 percent.
In particular, fish inflation went down to 10.2 percent from 12.4 percent, while fruits deflated by 0.4 percent.
Meat inflation, which has been a major concern since the start of the year, slightly decreased to 15.6 percent from 16.4 percent. Vegetables, meanwhile, inched up to 16.2 percent.
Despite food inflation going down for the month, Mapa maintained that such levels remain high, especially with still double-digit increases on meat, fish, vegetables and now corn, for areas outside the capital.
“While some items slowed down a bit, those that have bigger weight in our inflation basket are still posting double-digit gains,” Mapa said.
He pointed out that a huge factor in the easing was the lower prices of rice, which is the country’s main staple, thus occupying a huge chunk in the basket.
Socioeconomic Planning Secretary Karl Chua attributed the slowing of food inflation to the issuance of an executive order that reduced tariff rates on rice imports, both in-quota and out-of-quota, to 35 percent for a one-year period.
Likewise, Chua said the increase in the minimum access volume (MAV) and the temporary reduction of tariff for pork imports aided in the gradual decline in pork prices in the market.
“These have helped stabilize pork prices. The government is continuously accelerating and calibrating its implementation so we can further lower pork prices toward their pre-African swine fever (ASF) level,” Chua said.
To expedite the utilization of the additional MAV, the National Economic and Development Authority recommended lessening restrictions in the MAV Plus to ensure that imported pork can be sold in more areas and to unload more stocks in cold storages to the markets to further bring down prices.
In terms of fish inflation, the Department of Agriculture already approved the issuance of a certificate of necessity to import (CNI) 60,000 metric tons of fish to augment local supply during the closed fishing season. These are expected to arrive starting this month.
Chua said the government will immediately issue supplemental CNIs, as necessary, as it monitors the supply and demand of fish.
“The government will temporarily allow more imports in the fourth quarter of 2021 and the first quarter of 2022,” he said.
Further, also contributing to the inflation were increases in the prices of housing, water, electricity, gas and other fuels, which had an 18.3 percent share of the headline rate. This was driven by rentals, liquefied petroleum gas (LPG), and electricity.
Prices in restaurants and miscellaneous goods and services, which had a 10.7 percent share to the headline rate, went up 3.9 percent. This was driven by meals, articles for personal hygiene, and barbershop services.
Despite the latest slowdown, Rizal Commercial Banking Corp. chief economist Michael Ricafort warned that inflation could still accelerate or at least remain relatively elevated this month especially with the typhoon season already starting.
Ricafort said this could result in typhoon damage that would impact the prices of agricultural commodities. Higher global oil prices also pose risks on local fuel, LPG, and electricity prices.
“Possible peak in inflation around October toward the five percent level, in view of the typhoon season and quantitatively the tail end of the low inflation base and denominator effects,” he said.
The Bangko Sentral ng Pilipinas (BSP) said inflation could remain elevated before decelerating to within the target by end-2021, and would settle close to the midpoint of the same target in 2022 and 2023.
In a statement, BSP Governor Benjamin Diokno reiterated the central bank’s resolve “to maintain its accommodative monetary policy stance for as long as necessary…to the extent that the inflation outlook would allow”.
The BSP has kept its key interest rate at a record low for the past seven consecutive policy meetings, saying monetary settings remained appropriate given manageable inflation and uncertain growth outlook.
“Cost-side pressures remain but the lower-than-expected inflation rate gives the Bangko Sentral some breathing space to keep rates untouched for a little longer,” said ING economist Nicholas Mapa.
The path to full recovery for Philippine economy, which came out of a pandemic-driven recession in the second quarter, remains unclear, with the recent reimposition of strict quarantine protocols prompting the government to lower its 2021growth target.
Some economists believe the BSP will keep interest rates steady beyond 2021, but an elevated inflation has dimmed the prospect of further easing. – Lawrence Agcaoili