Inflation likely held steady at 6.4% in August – poll – BusinessWorld Online

By Keisha B. Ta-asan

INFLATION likely held steady in August, but still above the Philippine central bank’s target band for a fifth straight month as lower pump prices and power rates offset higher food costs, a BusinessWorld poll showed.

A BusinessWorld poll of 13 analysts yielded a median estimate of 6.4% for August inflation, well within the 5.9-6.7% forecast of the Bangko Sentral ng Pilipinas (BSP).

If realized, August inflation would be unchanged from the 6.4% print seen in July which was the highest in 45 months or since the 6.9% print in October 2018.

Inflation stood at 4.4% in August 2021.

August inflation would also likely exceed the central bank’s annual 2-4% target range for a fifth straight month.

The Philippine Statistics Authority (PSA) is scheduled to release the latest consumer price index (CPI) data on Sept. 6 (Tuesday).

Analysts noted that food prices remain elevated and likely drove the faster year-on-year inflation in August.

“The higher prices of key food items are due to supply constraints and the higher suggested retail price issued by the DTI (Department of Trade and Industry),” Philippine National Bank economist Alvin Joseph A. Arogo said.    

The DTI released on Aug. 12 the suggested retail price (SRP) bulletin for some basic and prime commodities, which reflected increases of between 3% and 10%. 

“The food basket is estimated to have contributed approximately 2.3%, remaining the prime inflationary factor especially with [storm] Florita’s damage to food output, on top of the prolonged sugar shortage,” Robert Dan J. Roces, chief economist at Security Bank Corp., said in an e-mail.

The Department of Agriculture reported P1.13 billion worth of damage to agriculture due to severe tropical storm Florita last month.

Sugar prices reached over P100 per kilo due to the shortage in supply, but several large supermarkets have agreed to sell sugar at P70 per kilo. 

LOWER OIL PRICES
“Offsetting (inflation) is lower global oil prices and lower cost of other food stuff. Price growth remains mostly cost-push driven amid some demand-side recovery. Upside risks coming from global factors remain significant,” Mr. Roces said.

Global oil prices fell for a third straight month in August over concerns that monetary tightening will hurt economic growth.

As of Aug. 23, pump price adjustments for the month stood at a net decrease of P0.75 a liter, diesel by P1.25, and kerosene by P0.95.

“We estimate August inflation to be slightly lower than the previous month at 6.3% due to declines in pump prices in the first three weeks of the month. Electricity for Meralco-serviced areas and LPG (liquefied petroleum gas) also posted lower rates for the month,” Domini S. Velasquez, chief economist at China Banking Corp., said in an e-mail.

Manila Electric Co. (Meralco) said the overall rate for a typical household went down by P0.2087 to P9.5458 per kilowatt-hour (kWh) in August.

Meanwhile, Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said inflation can put a damper on economic growth, more than rising interest rates.

“We have observed a slowdown in spending on discretionary items and services like restaurants dragged by rapid inflation and peso depreciation,” Mr. Neri said.

The local unit closed at an all-time low of P56.77 on Friday, weakening by 35 centavos from its P56.42 finish on Thursday, data from the Bankers Association of the Philippines showed.

For the year so far, the peso has weakened by P5.77 or 11.31% from its Dec. 31, 2021 close of P51 per dollar. The currency is the third worst performer in Asia in 2022, after the Japanese yen and South Korean won.

“We are concerned about the effects of the exchange rate on inflation,” BSP Governor Felipe M. Medalla said during the virtual Reuters NEXT Newsmaker event on Friday.

The central bank has increased borrowing costs by 175 basis points since May as it seeks to bring inflation back within target.

“If only the midpoint of our forecast is the basis for decision, we are already on the right path. But personally, I want a little bit more room for comfort,” Mr. Medalla said.

“I will not say whether my preference function is above (75 bps), below that, or on that…I don’t want to make my colleagues feel that I’m trying to pressure them to do what I like,” he added. 

At its August meeting, the BSP’s inflation forecast for 2023 was lowered to 4% from 4.2%, as well as the 2024 outlook to 3.2% from 3.3%

“So far, despite the cumulative 175 bps policy rate hike, BPI has not increased charges on credit cards which somewhat indicates that consumer demand has not been constrained by monetary tightening yet,” Mr. Neri said.

“As domestic inflation continues to rise, therefore, recovery to pre-COVID growth consumer demand has not been constrained by monetary tightening yet,” he added.

The Monetary Board will have its next policy-setting meeting on Sept. 22.