Inflation likely up anew in Feb
PHILIPPINE headline inflation likely further accelerated in February due to low base effects and higher prices of food, oil and electricity, analysts polled by The Manila Times said. Projections for the month ranged from 4.6 to 5.0 percent with a 4.8-percent average — higher than the 4.2-percent in January and year-earlier’s 2.6 percent.
Official February 2021 inflation data will be released by the Philippine Statistics Authority (PSA) on March 5.
Robert Dan Roces, chief economist of Security Bank Corp., projected inflation to settle within 4.8 to 5.2 percent (5.0 percent average).
“Prevailing prices of meat and vegetables remain elevated, based on price monitoring reports from the Philippine Statistics Authority. This means that supply disruptions remain unresolved and still exacerbated by the African swine fever (ASF) affecting pork supply. Fish prices have also gone up on seasonal demand,” he said in a report.
Roces said higher oil prices also likely pushed up inflation during the month.
“Oil firms have also continued to raise pump prices this month to reflect movement in the world oil market; crude futures on average have risen by 70 percent since October 2020. This affects local transport fare that remains limited due to the GCQ (general community quarantine),” said Roces.
The Manila Electric Co. (Meralco), however, reduced overall power rates by P0.0704 per kilowatt-hour (kWh), bringing February rates to P8.68 per kWh from
January’s P8.75 per kWh.
Roces said inflation will likely be elevated this year.
“Adding to the forward inflationary pressures are the rising global prices of soybean and corn, which are key inputs in the production of feed widely used to prepare hogs and chickens for market. Copper and steel – two key imports – are also seeing price growth mostly from China’s strong demand recovery,” he said.
“Core inflation will be a key determinant of consumption recovery as the release of pent-up demand should increase prices in core activities in the restaurant and other service industries,” he added.
Price controls, economic recovery
Rizal Commercial Banking Corp. (RCBC) chief economist Michael Ricafort, for his part, forecast inflation to hit 4.9 percent, driven by low base effects and supply-side inflation factors such as the latest
storm damage on agriculture in some adversely affected provinces by typhoon Auring especially in Southern Philippines.
He said, however. this may be offset by new harvests as well as non-monetary and other intervention measures by the authorities to increase local supply of pork, chicken, and other meat products, alongside with the 60-day price ceiling on pork in Metro Manila.
The government earlier imposed a 60-day price ceiling on pork and chicken products in Metro Manila. Under Executive Order 124, the price ceiling per kilogram of kasim (shoulder) and pigue (back leg or ham cut) is P270, P300 for liempo (belly), and P160 for dressed chicken.
“Any effective non-monetary measures, just like in the latter part of 2018 when inflation was high, would help make supply-side inflation temporary, especially in terms of increase the local supplies of food such as vegetables, pork, chicken, meat products, and other agricultural products in view of the storm damage since November 2020 and ASF that significantly reduced pork supplies for more than a year already,” said Ricafort.
He said external supply-side inflationary risk factors include higher global crude oil prices. This may be offset however by relatively softer pricing power of business due to the pandemic.
“However, these external supply-side sources of inflation cannot be easily controlled by nonmonetary measures that help make this exogenous supply-side inflation transitory. Weaker peso exchange rate vs the US dollar, among the weakest in 4 months could lead to some uptick in the prices of imports and overall inflation,” he said.
“Any risk of second-round inflation effects or higher prices of other affected goods and services in the economy, such as on transportation, could lead to some modest tightening of monetary policy, by way of higher local policy rate from the record low of 2.0 percent, or at least keeping monetary policy settings unchanged, at the very least, in view of the need to further support the economic recovery prospects from Covid-19 (coronavirus disease 2019) by way of monetary easing measures, that could do more heavy lifting for the economy in view of the limited funds for any additional stimulus measures, as the economy still needs all the support measures that it could get to help sustain the recovery of the economy, going forward,” he added.
HSBC Global Research, meanwhile, said inflation likely settled at 4.6 percent in February.
In a report, HSBC said supplyside pressures remain elevated due to rising food and oil prices.
It noted that while President Rodrigo Duterte signed an executive order mandating price ceilings for pork and chicken in Metro Manila, “Previous price cap measures have not proven effective in containing fast-rising inflation.”
“We recently revised up our 2021 headline CPI (consumer price index) forecast to 4.7 percent. This is above the Bangko Sentral ng Pilipinas’ (BSP) 2- to 4-percent target range. Consequently, we expect no further rate cuts from the BSP this year despite ongoing challenges to the economy as a result of Covid-19,” said HSBC.