MANILA, Philippines — Headline inflation is seen hitting 3.5 percent this year, still slower than the 2021 level despite increased pressure due to the ongoing Ukraine-Russia war.
In its latest economic monitor, international think tank Pantheon Macroeconomics significantly raised its inflation forecast for 2022 to 3.5 percent from 2.8 percent.
This as the conflict between Ukraine and Russia continues to escalate, resulting in soaring oil prices in the world market.
“The spike in oil prices and consequent increase in futures look severe on the surface. But we’d still need to see bigger gains for transport inflation to flirt with the 2021 peak,” Pantheon senior Asia economist Miguel Chanco said.
“As things stand, this component looks set to add just an extra 0.2 percentage point to the headline rate, with its contribution peaking in May,” he said.
Pantheon’s latest forecast is lower than the 2021 actual inflation print of 3.9 percent. It is also slightly below the central bank’s 3.7 percent assumption for the year.
Inflation remained at three percent in February, but upside pressure is already seen in transport costs, as well as housing, water, electricity, gas and other fuels.
The Department of Energy earlier warned that fuel prices may reach P100 per liter if global oil costs continue to be elevated.
Chanco said the Philippines would not severely suffer from soaring wheat prices. Russia and Ukraine are two of the world’s five biggest exporters of the commodity.
“The reassuring news for the Bangko Sentral ng Pilipinas is that rice accounts for the lion’s share of the starch in Filipino diets,” Chanco said.
Rice makes up for 72 percent of the weight of cereal and cereal products in the consumer basket.
However, he noted that food inflation would rise persistently this year, but base effects would slow the reversion to the mean at least until the third quarter.
“Rising wheat prices could translate to higher pork prices, as wheat is a substitute for corn in feed, but this pass-through has yet to show in the near-real-time data,” Chanco said.
In a separate report, UK-based The Economist Intelligence Unit (EIU) warned that global prices of agricultural commodities would remain elevated for much of the year, as long as the conflict rages between the two countries.
“We expect further supply disruptions in Ukraine, especially as land routes will also be affected. This will exacerbate the situation on the Black Sea, where ports will probably remain unusable for many months to come,” the EIU said.
“Higher grain prices and disruptions in exports will also adversely affect livestock and meat markets globally,” it said.