Economists hike inflation forecasts  

MANILA, Philippines —  Economists have started revising upward their inflation forecasts for this year as the rate of increase in commodity prices quickened to 5.3 percent in August, ending six straight months of easing.

Euben Paracuelles, chief economist for ASEAN at Nomura, said the Japanese bank has raised its inflation forecast to 5.9 percent from 5.3 percent for this year, taking into account not just the higher-than-expected outturn in August, but also due to the fact that food price inflation risks flagged previously are materializing early.

Inflation averaged 6.6 percent in the eight months to August, way above the Bangko Sentral ng Pilipinas (BSP)’s target range of two to four percent, after inflation accelerated in August.

Prior to August, the growth in the consumer price index (CPI) had been decelerating after peaking at a 14-year high of 8.7 percent in January.

“We expect upward pressure on food prices to intensify in the coming months owing to the ongoing El Niño phenomenon and the lagged effects of rising international food prices, which are likely to be exacerbated by increased protectionism among food exporters,” Paracuelles said.

Nomura also raised its core inflation forecast slightly to 6.4 percent from 6.2 percent for 2023, owing to spillovers from higher food and energy prices.

It said second-round effects would likely be more limited in the current environment of weakening domestic demand.

Christine Tang, country analyst for the Philippines at New York-based GlobalSource Partners, said in a commentary that the think tank raised its forecast to 5.8 percent from 5.6 percent for 2023 as the inflation path has moved up.

“Following current price trends, including for oil, the average next year is also expected to settle above the midpoint of the BSP’s two to four percent inflation target,” Tang said.

Given narrower policy interest rate differentials with the US of less than 100 basis points, Tang pointed out that a rate hike is possible to preempt more peso volatility if markets expect another bout with inflation.

“The Monetary Board next meets on Sept. 21 to decide policy rates and will do so again only in mid-November, a rather lengthy gap in case of market turbulence,” she said.

“Analysts had expected a higher inflation rate for August, but the actual number, 5.3 percent, exceeded the median 4.9 percent forecast. The relatively sharp 1.1 percent month-on-month increase in prices can be traced largely to the 2.4-percent rise in food prices,” Tang said.

According to the think tank, August inflation notably reflected a 4.9 percent increase in rice prices, the first increase of such magnitude since the 2019 Rice Tariffication Law (RTL).

“Rice is Filipinos’ basic food staple, making up close to nine percent of the CPI basket. In addition to rice, vegetable prices also rose markedly (11.2 percent) whilst non-food items rose marginally (0.4 percent) despite the weekly increases in pump prices during the month,” Tang said.

A counterargument may be made based on an executive order capping regular and well-milled rice prices at P41 and P45 per kilo, respectively, to discourage hoarding and speculative pricing.

Citi economist for the Philippines Nalin Chutchotitham said it has raised its inflation forecast to 5.6 percent from 5.4 percent for this year due mainly to elevated food prices.

“We tweak our 2023 inflation forecasts slightly higher, but continue to observe deceleration of inflation in most non-food categories. Given more efforts by the government on capping rice prices, easing core inflation and weaker Q2 GDP (gross domestic product), we do not expect further rate hikes by the BSP,” Chutchotitham said.

In a report released yesterday, chief emerging Asia economist Miguel Chanco and senior Asia economist Moorthy Krshnan at UK-based Pantheon Macroeconomics said the August headline inflation rate, which accelerated for the first time in seven months, was a big surprise.

“We have raised our full-year forecasts as a consequence, and now see the averages for 2023 and 2024 at 5.6 percent and 2.8 percent, respectively, up marginally from our previous projections of 5.4 percent and 2.6 percent,” they said.

The Pantheon  economists said the September inflation data will offer the first insight into how the rice price caps imposed through Executive Order 39 are being strictly enforced.

They said “this measure could also backfire, if it inadvertently leads to widespread shortages.”

The price ceiling on rice took effect beginning Sept. 5.