Inflation breaches gov't target anew to hit over 2-year high

MANILA, Philippines (Update 1, 1:31 p.m.) — Consumer price growth resumed its uptick to accelerate beyond government expectations anew in August on higher utility costs and pricier food items.

Inflation, as measured by the consumer price index, went up 4.9% year-on-year in August, faster than 4% on-year clip recorded in July, the Philippine Statistics Authority reported on Tuesday.

The latest print, the briskest growth since December 2018’s 5.1%, settled at the upper-end of the Bangko Sentral ng Pilipinas’ forecast range of 4.1-4.9% for the month. It marked another month that inflation breached the government’s 2-4% annual target after briefly returning within that zone in July.

Year-to-date, inflation averaged 4.4%.

 “The latest outturn is consistent with the BSP’s assessment that inflation could settle close to the high end of the target range in the near term before decelerating back to within the target range by year end,” BSP Governor Benjamin Diokno, who vowed to keep interest rates at record-low for as long as necessary to help the pandemic-hit economy, said.

According to state statisticians, the higher prices were more damaging to the poor. Inflation for low-income households rose by 5.2% year-on-year in August, faster than the preceding month and higher than the national average.

Dissecting the PSA data, the faster inflation in August was mainly driven by higher food prices, particularly vegetable and fish. Prices of fish grew 12.4% year-on-year in August, which National Statistician Claire Dennis Mapa attributed to supply problems.

Vegetable inflation picked up at a faster rate of 15.7% last month after monsoon rains hit farmlands while renewed lockdowns during the month pushed up costs of transporting crops, Mapa said. Meat inflation, meanwhile, was still elevated at 16.4% despite the arrival of imported pork to plug a supply hole left by the African swine fever outbreak.

Another contributor to higher inflation in August was higher utility costs, which went up 3.1% year-on-year from 2.6% in the previous month, data showed.

“It’s more of the supply issue,” Mapa said.

Jun Neri, lead economist at Bank of the Philippine Islands, disagreed with Mapa, saying improving demand may be starting to fan inflation already. Neri explained that this was evident from the peso’s current weakness, which is driven by a pick-up in imports to meet recovering demand as the economy slowly emerges from lockdowns.

This, Neri said, may prompt the Bangko Sentral ng Pilipinas to hike its policy rate to temper the currency slump that’s stoking inflation.

“With a mild demand recovery in 2021 translating to a 3% drop in PHP so far this year, why should we be surprised that inflation is inching up?” Neri said in a text message. “Can’t a return to positive real interest rates not help temper some of this demand recovery causing the depreciation,” he added.

But Sanjay Mathur and Bansi Madhavani, economists at ANZ Research, believe otherwise, saying the “demand side drivers of inflation are weak” for the BSP to act.

“The inflation data is unlikely to affect the BSP’s current monetary policy stance,” Mathur and Madhavani said in an e-mailed commentary. “We believe that inflation will ease into the official target range of 2-4% before the end of the year.”