Inflation forecasts for January mixed

MANILA, Philippines — Economist are at odds over the inflation print in January, with some expecting a pickup due to the damage caused by Super Typhoon Odette, while others see a further slowdown in the rise in consumer prices.

ING Bank Manila senior economist Nicholas Mapa said inflation may accelerate to 3.9 percent this month after slowing to a 12-month low of 3.5 percent in December due to the impact of the typhoon that ravaged several areas in Visayas and Mindanao as well as still elevated utilities and transport costs.

“We expect the impact from storm damage caused by Typhoon Odette to feed through to January inflation given that the impact did not figure in the December inflation reading,” Mapa said.

He said the elevated utilities and transport costs associated with the sustained pickup in crude prices would also likely exert an upward pressure on the headline number.

Mapa’s forecast still uses the base year 2012 as the consumer price index (CPI) for all income households will still use the base year 2018 for the reporting of the January 2022 inflation.

“We eagerly await the release of 2018 base year inflation as the PSA (Philippine Statistics Authority) resets the base year to a more recent date.  Such a move will help create a more representative CPI basket and help us monitor price trends in a more efficient and effective manner,” Mapa said.

UnionBank chief economist Ruben Carlo Asuncion also expects inflation to pick up to 3.9 percent in January due to supply shocks in areas battered by Odette last month.

“We are expecting the January inflation to rise to 3.9 percent. We incorporated the impact of Odette’s supply shock in both Visayas and Mindanao. We have not revised our forecasts according to 2018 prices,” he said.

On the other hand, Philippine National Bank economist Alvin Arogo said inflation likely slowed for the fifth straight month to 3.3 percent in January due to high base effects.

“The year-on-year inflation will likely be lower than the 3.6 percent print in December as the high base effect should play a big role in counterbalancing the faster monthly increase in prices,” Arogo said.

This despite the expected delays in the effects from both Odette and higher oil prices in December as well as the imposition of stricter lockdowns in January due to the Omicron variant which resulted in capacity constraints on domestic transportation.

Inflation zoomed to 4.5 percent last year from 2.6 percent in 2020 and exceeded the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP) due to rising global oil prices and elevated food prices that caused supply side shocks such as weather-related disturbances and African swine fever outbreak.

Michael Ricafort, chief economist at Rizal Commercial Banking Corp., likewise said inflation in January eased to 2.9 percent, slightly below the midpoint of the central bank’s two to four percent target range.

Ricafort said non-monetary measures such as the increased importation of pork, fish and rice and lower tariffs, as well as the recent increase in the imports of cheaper vegetables and other food items helped increase local supplies and lower prices.

He said the latest restrictions and higher Alert Level 3 in Metro Manila and many other cities and provinces due to higher COVID cases at the start of the new year would slow down business activities that could ease demand and prices.

Likewise, Ricafort said the declaration of state of calamity and price controls in areas hard hit by Odette could also mitigate an increase in prices.

“Thus, the recent easing trend in year-on-year inflation could help justify the relatively accommodative monetary policy in the country, especially in terms of keeping the key local policy rate unchanged at the record low of two percent, in view of the economy’s need for greater support measures to help sustain economic recovery,” Ricafort said.

He said a possible rate hike by the US Federal Reserve starting as early March could lead to some increase in local policy rate, especially in the latter part of 2022.

Using the base year 2018, Security Bank chief economist Robert Dan Roces said inflation in January likely settled at 2.8 percent, factoring in upside food price pressures stemming from the impact of Typhoon Odette as well as an upward movement in the utilities basket on higher electricity and oil costs.

“Offsetting this is the impact of Omicron, which may have either steadied or exerted slight downward price movements in all the other baskets, including the heavily weighted restaurants and accommodation basket plus the new personal care basket, as mobility regressed back to pre-November 2021 levels this month,” Roces said.