Highest in more than 3 years
MANILA, Philippines — The still elevated oil prices in the global market continued to spill over to other commodities in the local consumer basket, pushing the Philippines’ headline inflation to 5.4 percent in May, the highest rate in three-and-a-half years, with a slowdown still out of the picture.
The Russia-Ukraine war, which prompted global oil prices to soar, remained a major concern for net oil importer Philippines as consumers felt the pinch of more expensive food and non-food items.
Last month, headline inflation – the rate of increase in the consumer price index – accelerated to 5.4 percent from 4.9 percent in April.
Data from the Philippine Statistics Authority (PSA) showed that the latest figure was the highest in three-and-a-half years or since the 6.1 percent recorded in November 2018.
The May inflation settled correctly at the market consensus of 5.4 percent and was at the midpoint of the central bank’s five to 5.8 percent assumption for the month. Inflation for the five-month period now averages at 4.1 percent.
In a briefing yesterday, national statistician Dennis Mapa said the higher inflation for the month in review was largely due to higher transport costs, spilling over to food commodities, which have bigger weight in the consumer basket.
“The spillover effect started a few months ago and now we have seen that the impact was bigger and more pronounced,” Mapa said.
“The past five months, we saw inflation going up. The slope was steeper due to the significant impact of transport costs and oil products,” he said.
Mapa maintained that the inflation trajectory seems to be going further upward, especially as the Philippines remains dependent on oil imports and the volatility in the world market persists.
“If prices continue to rise, then the expectation is for continued increase in the prices in the local market,” he said.
The heavily weighted food and non-alcoholic beverages contributed the highest share to the uptrend at 70.1 percent. Food inflation jumped to 4.9 percent from 3.8 percent on higher prices of vegetables, tubers, meat, fish and other seafood.
Mapa said there are already a number of food products that saw increases in prices even if they have smaller weight in the food basket.
Corn inflation also remained elevated due to limited global supply. On the upside, rice prices are stable with a deflation of 1.5 percent due to the continued implementation of the Rice Tariffication Law.
Likewise, pressure remains on the transport subgroup, with inflation increasing to 14.6 percent from 13 percent, contributing 24.6 percent to overall inflation.
Inflation for diesel soared to 86.2 percent while gasoline rose to 47.2 percent as global oil prices showed no sign of a downtrend. Inflation for passenger transport by road also jumped to 1.1 percent from 0.5 percent in April.
Another source of inflation during the month was alcoholic beverages and tobacco, jumping to 6.8 percent. Prices of cigarettes, beer, and spirits and liquors all posted hikes.
Inflation for housing, water, electricity, gas and other fuels, which shared 26 percent to the headline rate, went down to 6.5 percent from 6.9 percent in April. Liquified petroleum gas and rentals both went up while electricity slightly eased.
In a statement, Socioeconomic Planning Secretary Karl Chua said the war has disrupted the global supply chain and elevated commodity prices, particularly for fuel.
Chua maintained, however, that the outgoing Duterte administration is pursuing both short and long-term interventions to increase the resilience of the domestic economy against external shocks.
On the rising cost of fuel, the government has set aside P6.1 billion in fuel subsidies for public utility vehicle (PUV) drivers and farmers.
So far, over 180,000 PUV drivers and operators have received their P6,500 fuel subsidy while almost 160,000 farmers and fishers will get P3,000 fuel discounts.
To ensure more commodities at lower prices, President Duterte also approved the modification of tariff rates for pork, corn, rice, and coal.
The Philippines has effectively lowered the most favored nation (MFN) tariff rates for the importation of pork and rice. The duty for corn has also been reduced to support the production of large-scale broiler and swine farms.
To help maintain or lower electricity prices, the government also temporarily eliminated the seven percent MFN import tariff rate on coal.
“These temporary measures are expected to increase our food supply and ease higher electricity costs in the short-term,” Chua said.
ING Bank senior economist Nicholas Mapa maintained that price pressures would persist in the near term.
“This should keep the Bangko Sentral ng Pilipinas (BSP) on the rate hike path. We are penciling in a 25- basis- point increase at the June meeting with a 50- basis- point hike in play,” he said.
Last month, the BSP hiked its policy rate by 25 basis points to 2.25 percent, its first time to do so in more than three years.
Market consensus showed that the BSP will deliver at least two more rate hikes this year, with the next one likely to happen this month.
Rizal Commercial Banking Corp. chief economist Michael Ricafort, for his part, said the current proposal to slap higher and additional taxes could lead to pick up in prices and overall inflation.
Ricafort said sources of second-round inflation effects include higher wages, possible hikes in transport fares that could lead to higher prices of other affected goods and services in the economy.
“Some regional wage boards already approved minimum wage rate hikes effective this month, already leading to some price increases in some products and services,” Ricafort said.
“Inflation could pick up further starting June and with some lagged effects in the coming weeks and months, as could be offset by competition and pricing power as the economy is still reeling from the adverse effects of the pandemic,” he said.
Meanwhile, following the trend in the national level, inflation in Metro Manila soared to 4.7 percent while that of the areas outside NCR rose to 5.5 percent.
Consumer prices for the country’s poorest households accelerated as CPI for the bottom 30 percent income group jumped to a seven-month high of 4.3 percent.
Faster growth was seen in the indexes of food and non-alcoholic beverages, alcoholic beverages and tobacco, clothing and footwear, transport, and recreation and culture.
Prices of consumer goods for the poorest households outside the capital went up to 4.3 percent while inflation in NCR increased 4.1 percent.