Inflation markedly lower in January

Core figure also drops; food inflation slows further but rice price growth hits 14-year high

INFLATION slowed to well within target in January as food prices fell, the Philippine Statistics Authority (PSA) reported on Tuesday.

At 2.8 percent, consumer price growth decelerated from December’s 3.9 percent and was substantially lower than the 14year high of 8.7 percent seen a year earlier.

It was also the lowest in over three years or since October 2020’s 2.3 percent.

Inflation hit the lower end of the Bangko Sentral ng Pilipinas’ (BSP) 2.8- to 3.6-percent estimate for the month and was below the 3.0-percent median in a Manila Times poll of economists.

After nearly two years of abovetarget inflation, January’s result marked the second straight month that the rate fell within the BSP’s 2.0- to 4.0-percent goal.

The central bank, however, warned that inflation could accelerate anew and said that key interest rates would remain high until price growth stabilizes.

The BSP’s policy rate currently stands at 6.5 percent, the highest since 2007, following 450 basis points of rate hikes beginning May 2022 as inflation surged in the wake of Russia’s invasion of Ukraine.

Primary contributor

“The downtrend in the overall inflation in January 2024 was primarily brought about by the slower annual increment of food and non-alcoholic beverages at 3.5 percent … from 5.4 percent in the previous month,” the PSA said in a statement.

Food and alcoholic beverages accounted for a 47.1 percent share or 1.3 percentage points of overall inflation.

Food inflation, in particular, slowed to 3.3 percent from 5.5 percent in December, which the PSA said was due to a steeper contraction of 20.8 percent from 9.2 percent in prices of vegetables, tubers, plantains, cooking bananas and pulses.

Other food items that posted price drops were corn (-4.3 percent from -3.5 percent), oils and fats (4.3 percent from -3.6 percent; meat and other parts of slaughtered land animals (-0.7 percent from 0.2 percent); and sugar, confectionery and desserts (-1.0 percent from 0.1 percent).

As for non-food items, housing, water, electricity, gas and other fuels recorded slower inflation of 0.7 percent for the month from 1.5 percent, while transportation inflation fell by 0.3 percent after rising by 0.4 percent a month earlier.

Core inflation, which excludes volatile food and energy items, further decelerated in January to 3.8 percent from the 4.4 percent seen in the previous month and 7.4 percent a year earlier.

Rice a concern

Rice inflation, however, surged to a 14-year high of 22.6 percent from December’s 19.6 percent, which National Statistician Claire Dennis Mapa said was due to currently high global market prices.

The base effects that allowed for lower overall inflation had the opposite effect for rice, with Mapa noting that price growth for the staple was much lower a year ago.

Rice inflation is expected to continue accelerating as dry spells brought by the El Niño weather pattern affect farm output.

Socioeconomic Planning Secretary Arsenio Balisacan, in a separate statement, said the government would continue to monitor the supply of food and prices.

With El Niño expected to linger until May, he said the government would “introduce stop-gap measures, as necessary, such as allowing further imports on key commodities….”

He noted that reduced tariffs on 2024 pork, corn, and rice had been extended to the end of 2024 and that the Philippines recently signed an agreement with Vietnam for the supply of 1.5 to two million metric tons of rice per year.

The Social Welfare department also plans to expand a food stamp program to cover 300,000 families in a bid to aid the most vulnerable this year, Balisacan said.

Upside risks

The BSP said the January inflation drop was in line with expectations of a first-quarter moderation, mostly due to base effects and the partial alleviation of supply constraints.

Consumer price growth, however, could again top 4.0 percent starting the second quarter due to El Niño and continued base effects.

The balance of risks to the inflation outlook, the BSP said, “still leans significantly towards the upside.”

“Key upside risks are associated with potential pressures emanating from higher transport charges, increased electricity rates, higher oil prices, and higher food prices due to strong El Niño conditions,” it added.

“Meanwhile, the impact of a relatively weak global recovery and the government measures to mitigate the effects of El Niño could ease some price pressures.”

Monetary policy settings will be kept at a sufficiently tight level until a sustained decline in inflation is noticeable, the central bank continued.

The BSP said it would take into account the latest inflation result, along with preliminary 2023 growth data, during a policy meeting next Thursday, February 15.

The Philippine economy grew by 5.6 percent last year, missing the government’s 6.0- to 7.0-percent target. High interest rates, which were still among the highest in the region, were a factor.

Analysts expect monetary authorities to hold fire anew, with rate cuts only likely to start in the second half of the year or by June at the earliest.