No sign yet of peak inflation as January prices sizzle to new 14-year high
MANILA, Philippines (Updated, 11:35 a.m.) — Inflation unexpectedly got hotter in January as costly utilities during the month overtook expensive food items as the major driver of price growth, dashing hopes that the uptrend would reach its peak soon and would start to ease.
Inflation, as measured by the consumer price index, accelerated 8.7% year-on-year in the first month of the year, faster than 8.1% print recorded in December, the Philippine Statistics Authority reported Tuesday.
The latest reading was still the briskest rate since November 2008, or during the Global Financial Crisis.
The surprising January figure bucked market expectations of a cooler inflation, which was widely projected to have peaked in December as robust demand during the holiday season was highly expected to have waned.
The government had similar hopes as it scrambles to tame stubbornly high prices that have been hurting many Filipino families for over a year now. PSA data showed inflation felt by the country’s poorest households rose to 9.7% in January from 9.4% in December — a more painful figure than the headline rate.
But the much-anticipated inflation peak did not happen and the upsetting figure even exceeded the Bangko Sentral ng Pilipinas’ 7.5-8.3% forecast range for January.
“As a consumer I would want that that is already the peak. However, we have to look at the data. We have challenges,” National Statistician Claire Dennis Mapa told reporters at a press conference.
“The main risk is food prices. We will monitor this… The price increases have already spread to many commodity groups,” he added.
Broken down, nine out of 13 commodity groups in the basket of goods used to compute inflation had posted higher price upticks in January. Housing rents and utilities were mostly responsible for the overall price uptick last month, after contributing 50.8% to the headline inflation rate.
Food inflation — which quickened 10.7% year-on-year —accounted for 29.9% of the overall consumer price growth last month. Food items like onions, eggs and bananas were notably high in January, data showed.
More tightening?
While persistent supply issues are to blame, some economists believe a resurgent consumer demand is worsening the inflation problem. PSA data showed core inflation — which excludes volatile items to get a cleaner reading of underlying price trends that are affected by demand conditions — spiked to 7.4% in January, from 6.9% in December.
As it is, Filipinos have found more flexibility to go out as pandemic curbs ease, fueling a “revenge spending” explosion that supported economic growth last year. For Leonardo Lanzona, an economist at Ateneo De Manila University, inflation would likely sustain its ascent in the coming month because improvements in the production side remain “doubtful”.
“Previously it was the depreciation of the peso that was causing the inflation. Now with stable foreign exchange, inflation remains because of the surge in consumer demand. This increased demand may have been caused by the higher remittances,” he said.
Nicholas Antonio Mapa, senior economist at ING Bank in Manila, expects the BSP to think hard about its rate hikes in the coming months. Central banks typically raise interest rates to temper demand and bring it in line with limited supply.
ING’s Mapa noted that the BSP’s decision to raise the cap on credit card payments from 2% to 3% monthly, totaling 36% yearly, stood as “a de facto tightening move.” Even then, the onus is on the Marcos Jr. administration to address supply issues.
“We penciled in a 50bp rate hike for the first half but given today's inflation report, we could see BSP front-loading hikes to next week,” he said in a Viber message.
“BSP has hiked aggressively and we could see them eventually wind down their rate hike cycle. No amount of hiking can completely address supply-side issues,” Mapa added.
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