A GASOLINE attendant fills a motorcycle at a gas station along T.M. Kalaw, Manila. — PHILIPPINE STAR/ RUSSELL A. PALMA
INFLATION likely accelerated beyond the central bank’s target in April, as food and oil prices continue to climb amid the ongoing Russia-Ukraine war and agricultural damage caused by Tropical Storm Agaton.
A BusinessWorld poll of 17 analysts yielded a median estimate of 4.6% for April inflation, matching the midpoint of the 4.2% to 5% forecast by the Bangko Sentral ng Pilipinas (BSP).
If realized, this would be faster than the 4% in March and the 4.5% in April 2021. It will match the 4.6% print seen in October.
April would also be the first time that inflation exceeded the BSP’s 2-4% target band since the 4.2% print in November 2021.
April inflation data will be released on May 5.
“Higher electricity rates in Meralco (Manila Electric Co.)-serviced areas, increased domestic petroleum prices as well as higher meat and fish prices are the primary sources of inflationary pressures during the month. Inflation pressures will also emanate from positive base effects. These could be offset in part by lower prices of fruits and vegetables and the broadly stable peso,” the BSP said on Friday.
Pump prices and electricity rates continued to rise in April, reflecting the volatility in global oil prices since Russia invaded Ukraine in late February.
China Banking Corp. Chief Economist Domini S. Velasquez said in an e-mail that inflation in April was driven by persistently elevated crude oil prices in the world market.
Year to date, gasoline, diesel and kerosene prices have increased by P18.45, P31.45, and P25.05 per liter as of April 26. A rollback in pump prices is expected on Tuesday, according to the Department of Energy (DoE).
In April, Meralco rates for typical households increased by around P107 due to rising generation charge. The overall rate for residential users in April inched up by P0.5363 per kilowatt-hour (kWh) to P10.183 per kWh.
“We have seen a broadening of inflationary pressures on other products in the consumer price index (CPI) basket, such as food…. This April, we will likely see higher food inflation partly driven by increasing transport costs and higher price of grains globally,” Ms. Velasquez said.
Security Bank Corp. Chief Economist Robert Dan J. Roces said inflation is likely to peak in the second quarter, before easing above 4% for the rest of the year.
“In terms of proportion, the food basket may have contributed approximately 1.4% to the headline inflation reading in April, while utilities gave 1.5% and transportation 1.0%. These estimates show that inflation remains mostly cost-push driven, and now fully reflects the effects of the Russia-Ukraine conflict on prices,” he said.
Makoto Tsuchiya, an economist at Oxford Economics, said inflationary pressure is expected to linger, given their forecast of “higher-for-longer global commodity prices,” which will affect the Philippines since it is a net commodity importer.
The agricultural damage due to Tropical Storm Agaton may also have temporarily pushed food prices higher in April, Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said.
The Department of Agriculture estimated agricultural damage from Agaton reached P3.27 billion as of April 25.
Headline inflation in the first quarter stood at 3.4%, which is still within the BSP’s target. However, the central bank in March raised its inflation forecast for 2022 to 4.3%, cognizant of the effect of the Russia-Ukraine war on oil and commodity prices.
POLICY TIGHTENING?The continued increase in commodity prices should strengthen the case for the central bank to begin tightening monetary policy, Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said.
“Two years of exceeding the target means BSP should have hiked early last year since unlike our ASEAN (Association of Southeast Asian Nations) neighbors, the Monetary Board had clearly cut rates too low in 2020,” Mr. Neri said.
“The local economy’s recovery is clearly dependent on the reopening of the economy and has little to do with keeping interest rates repressive (or negative) or not,” he added.
The BSP has kept the 2% policy rate unchanged at a record low since November 2020.
Inflation quickened to 4.5% in 2021 from 2.6% in 2020, mainly due to low meat supply amid the African Swine Fever outbreak.
The economy expanded by 5.7% in 2021, a turnaround from the record 9.6% contraction in 2020. Economic managers expect GDP to grow by 7-9%, although the impact of the war may dampen recovery.
PNB economist Alvin Joseph A. Arogo said the central bank may go for a 50-basis-point (bp) increase for the rest of the year as recovery becomes more solid.
“We have a baseline forecast of two 25-bp rate hikes this year (25 bps on June 23 and another 25 bps on Sept. 22) on the assumption that the economy is poised to return to its pre-pandemic level by the second quarter of 2022,” Mr. Arogo said.
Security Bank’s Mr. Roces said the BSP could go as far as hiking rates by 75 bps and still be supportive of economic recovery.
“A 25-bp [increase] move this June is seen to remain ‘accommodative’ in the sense that it will still be far from the pre-pandemic rate of 4% yet enough to cover the differential versus the Federal Open Market Committee’s rate, remain supportive of credit recovery for productive purposes, and help rein-in local inflation as a preemptive measure for upside risks in the second half and beyond,” Mr. Roces said.
The US Federal Reserve raised policy rates by 25 bps in March. It is expected to hike rates by another 50 bps when the Fed’s meeting ends on May 4.
Last week, BSP Governor Benjamin E. Diokno said they may consider a rate hike in June as they expected strong economic growth in the first quarter.
First-quarter economic data will be released on May 12.
The Monetary Board will have its next policy review on May 19. — Luz Wendy T. Noble