Inflation zooms to over 3-year high

Gasoline and diesel prices have continued to climb amid volatility in global oil markets. — PHILIPPINE STAR/ WALTER BOLLOZOS

By Keisha B. Ta-asan

PHILIPPINE INFLATION surged to an annual 4.9% in April, the highest in more than three years as soaring food and energy prices continued to hurt consumers.

This could bolster the case for the Bangko Sentral ng Pilipinas (BSP) to tighten monetary policy earlier than expected.

Consumer prices rose to a 40-month high of 4.9% annually, from 4% in March and 4.1% in April a year ago, preliminary data from the Philippine Statistics Authority (PSA) showed.

It was the quickest pace since the 5.2% print in December 2018, and higher than the 4.6% median estimate in a BusinessWorld poll last week.

The headline figure also breached the central bank’s 2-4% target range for the year, and near the upper bound of its 4.2-5% forecast range for April.

The last time inflation went above the target was in September 2021 when it rose by 4.2%.

Month on month, inflation inched up by 0.8%. Stripping out the seasonality effects on prices, April’s inflation steadied at 1% month on month from March’s 1%.

Inflation averaged 3.7% in the four months to April, lower than 4.1% seen in the same period last year. However, it was still lower than the central bank’s 4.3% forecast for the year.

Prices of heavily weighted food and non-alcoholic beverages grew by 3.8% in April, accelerating from 2.6% in March. This matched the pace recorded in April 2021.

Housing, water, electricity, gas, and other fuels rose by 6.9% in April from 6.2% the prior month and higher than the 1.3% a year ago.

PSA data showed inflation in transport also picked up to 13% from 10.3% but eased from 16.6% last year.

The food-alone index also jumped by 4% in April from 2.8% the previous month. However, it slowed from 4.1% from a year ago.

Meanwhile, the April inflation rate for the bottom 30% of households, which still use the 2012-based prices, increased by 3.8% from 3.3% in March, but lower than the 4.9% in April 2021.

The PSA said the rebased 2018-based inflation for poor income households is scheduled to be released in December 2022.

“World commodity prices remain high as a consequence of the ongoing Russia-Ukraine war. The impact is felt domestically not just on food and basic goods but also on transport and utilities,” Socioeconomic Planning Secretary Karl Kendrick T. Chua said in a statement.

Global oil and commodity prices have become more volatile after Russia invaded Ukraine in late February.

As of April 26, prices of gasoline and diesel have increased by P18.45 and P31.45 per liter since the start of the year. This has prompted labor groups to file petitions for wage hikes, and transport groups to seek fare increases.

Meanwhile, the central bank said the domestic economic activity improved as restrictions eased but geopolitical tensions and emergence of new COVID-19 variants have clouded the outlook for global economic growth.

“Inflation will remain elevated over the near term due to the continued volatility in global oil and non-oil prices, reflecting largely the continued impact of the conflict in Ukraine on global commodities market,” BSP Governor Benjamin E. Diokno said in a Viber message to reporters.

Mr. Diokno said inflation could settle above the government’s target range this year before decelerating back to the target in 2023.

“While there are signs that inflation expectation is higher for 2022, it remains broadly anchored to the target in 2023,” he added.

University of Asia and the Pacific Senior Economist Cid L. Terosa, said the rising fuel and electricity prices exerted direct and indirect upward pressure on food prices.

“Also, the flurry of election-related activities added to the steep ascent of prices last month,” he said in an e-mail interview.

Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said in a press release that oil prices may continue to rise in the coming months if the European Union decides to implement an oil embargo against Russia.

Economists said the inflation target will be difficult to achieve this year coupled with a likely robust first-quarter gross domestic product (GDP) in the first quarter could prod the BSP to hike record-low key rates in the next coming months. 

“We think that the government’s inflation target will be breached and that average 2022 inflation will settle at 4.7%,” UnionBank of the Philippines Chief Economist Ruben Carlo O. Asuncion said.

“My thinking is that a better-than-expected first-quarter 2022 GDP growth may merit a May hike. Nevertheless, the BSP may be willing to hold until June,” he said.

ING Bank N.V. Manila Branch Senior Economist Nicholas Antonio T. Mapa expects the central bank to raise the interest rates within the quarter as high inflation reading persists.

“However, with first-quarter GDP growth expected to be robust and confirming that growth momentum is intact, we expect BSP to finally move rates higher,” Mr. Mapa said.

“A GDP growth rate of over 6% on top of the above-target inflation rate should be enough to prod BSP to hike rates as early as the 19 May policy meeting,” he added.

Nomura maintained its average full-year inflation forecast at 4.6%, above the BSP’s 2-4% target.

“Our forecast pencils in a trajectory in which headline inflation rises further and averages above 5% over the next three months, still driven by similar factors (i.e., higher oil and food prices),” Nomura research analysts Euben Paracuelles and Rangga Cipta said in a note sent to reporters.   

Asian Institute of Management economist John Paolo R. Rivera said combating high inflation can be addressed by appropriate fiscal and monetary policy.

“Together with the Monetary Board’s interpretation of Fed moves and possible actions, the Monetary Board will decide whether to raise monetary policy rates earlier than expected,” Mr. Terosa said via Viber.

The US Federal Reserve raised its key rates by 50 basis points to a range of 0.75% to 1% at the end of its May 3-4 meeting.

Last week, Mr. Diokno said the BSP was looking at raising interest rates two to three times to bring down inflation by next year, with the first hike to be considered in June.

The BSP has kept the key overnight reverse repurchase facility rate at a record low of 2% since November 2020 to help the economy weather the pandemic.

The PSA is scheduled to release the first-quarter GDP data on May 12, ahead of the Monetary Board meeting on May 19. — with inputs from Luz Wendy T. Noble and Reuters

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