MANILA, Philippines (Update 1, 11:23 a.m.) — The prices of key goods and services hit their quickest pace of growth in over a decade in October, forcing Filipinos to continue tightening their spending and giving the Bangko Sentral ng Pilipinas more reason to stay hawkish.
Inflation, as measured by the consumer price index, accelerated to 7.7% year-on-year in October, the Philippine Statistics Authority reported Friday. That was faster than the 6.9% figure recorded in the preceding month.
National Statistician Claire Dennis Mapa told reporters that the last time inflation reached this high was in early 2009 or at the time of the Global Financial Crisis. Year-to-date, inflation is currently averaging 5.4%, staying above the government’s 2-4% annual target.
But the October reading fell squarely within the Bangko Sentral ng Pilipinas’ projection of 7.1-7.9% for the month.
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Domini Velasquez, chief economist at China Banking Corp., attributed the quickening to higher prices of food and transport fare hikes.
“We expect non-food items to continue the same measured pace as the previous months due to the broadening of second-round effects, affecting transport fares and other services, such as restaurants and accommodation,” she said in a Viber message ahead of the data release.
A mix of persisting supply chain disruptions, expensive fuel prices, resurgent demand, and a weak peso pushed inflation to climb at the fastest pace within the pandemic. This rising trend, in turn, obliterated Filipinos’ purchasing power.
Velasquez, who forecasted inflation in October would amount to 7.3% said inflation “has likely peaked.”
“Outside any other unanticipated shock, we think that inflation has likely peaked and we expect the rate of growth to slowly decelerate in the coming months until it reaches the BSP's target of 4% by the second half of 2023,” she added.
Velasquez listed down risks that would push inflation further this year, which include the Marcos Jr. administration’s inability to address potential shortages, higher power rates and even a proposed increase in water tariffs.
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On the monetary policy side, the BSP unleashed a bevy of interest rate hikes to cool down the overheating Philippine economy. These adjustments to the policy rate, which banks and financial institutions use as lending benchmarks, take six to 18 months before it seeps into the economy.
‘Not surprising’
Food inflation loomed large in the latest data outturn. According to state statisticians, the prices of food rose to 9.8% nationwide in December. Vegetables, meat, rice, fish and bread all recorded substantial increases in October, due in part to the recent battering of Typhoon Karding back in September.
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Zooming out, this means most Filipino households would need to stretch their monthly budgets. Da5a showed food prices in Metro Manila accelerated to 12.1%, with other regions such as Davao, Central Visayas, Mimaropa, and Caraga recording double-digit growth in October.
Leonardo Lanzona, an economist from Ateneo De Manila University, said the latest figures were not surprising.
“This is expected since the government seems not intent on doing anything by way of raising productivity. This would have been fine if employment and economic activity are rising,” he said.
As it is, inflation for the country’s poorest hit a blistering 7.2% year-on-year in October.
Prices in the transport sector, which factor in fuel prices and fares, rose in October. Transport fare hikes rose 9% as the national government approved petitions for increases last month to aid the sector reeling from inflation and expensive fuel prices.
“Given the economic slowdown, the inflation will only cause greater hardship to the majority. With further increases in interest rates, the inflation may be somewhat stalled, other things constant. But it can mean a further economic slowdown and higher unemployment,” Lanzona added.
Faster inflation likely
The PSA said there’s a “substantial probability” that inflation in November could quicken, owing to the damage typhoon “Paeng” left in its wake. Nicholas Antonio Mapa, senior economist at ING Bank in Manila, agreed with the PSA’s assessment.
“The BSP indicated that we may be close to peak but we expect price pressures to remain potent especially after the country was hit by another storm last week. Confluence of supply and demand side pressures to push headline inflation closer to the 8% handle by December and drift lower in the first half of 2023 as second round effects still likely to proliferate,” he said in an emailed commentary.
ING Bank’s Mapa expects the BSP to maintain its hawkish tilt, as the central bank recently assured a 75-basis point hike in its November meeting to match the US Federal Reserve’s action.
That said, this could affect the country’s growth figures in the latter portion of the year. Inflation suppressed economic growth in the second quarter.