By Abigail Marie P. Yraloa, Researcher
INFLATION eased to a two-month low of 6.3% in August, as the rise in food and transport costs slowed, the Philippine Statistics Authority (PSA) said on Tuesday.
But the surge in core inflation, which the PSA released for the first time in eight months after it shifted the base price to 2018, gives a hint that the worst is not over yet.
Preliminary data from the PSA showed the consumer price index (CPI) eased to 6.3% year on year in August, from the nearly four-year high of 6.4% in July. It remained significantly higher than the 4.4% seen in August 2021.
This was slightly lower than the 6.4% median estimate in a BusinessWorld poll conducted last week, but within the 5.9-6.7% forecast range of the Bangko Sentral ng Pilipinas (BSP) for that month.
August marked the fifth consecutive month that inflation went above the BSP’s 2-4% target range.
Last month’s inflation print was the slowest in two months, or since the 6.1% in June.
Month on month, inflation rose 0.4%. Stripping out seasonality factors, month-on-month inflation also inched up 0.4% in August.
In the first eight months of 2022, inflation averaged 4.9%, faster than the 4% a year ago. This is still below the BSP’s 5.4% full-year inflation forecast.
At a press briefing, National Statistician Claire Dennis S. Mapa attributed the slowdown in headline inflation to transport costs as fuel retailers cut pump prices in the early part of August.
The transport index, which accounts for 9% of the CPI, eased to 14.6% year on year in August from 18.1% in July. This was attributed to the deceleration of prices of diesel (70.95% in August from 91.3% in July) and gasoline (31.2% from 45.4%).
The heavily weighted index for food and non-alcoholic beverages, which account for nearly 38% of the theoretical consumer basket, slowed to 6.3% year on year in August from 6.4% in July.
The food-alone index likewise eased to 6.5% in August from 7.1% in the previous month.
Mr. Mapa said this was due to the slower increase in prices of fish (7.2% in August from 9.2% in July), meat (9.6% from 9.9%) and vegetables (-2.7% from 5.6%).
However, inflation in sugar, confectionary and desserts rose to 26% in August from July’s 17.6%, as prices of refined sugar remained elevated due to a supply shortage.
Major commodity groups that saw higher inflation included alcoholic beverages and tobacco (9.3% in August from 8.5% in July), education services (3.8% from 6.4%), restaurants and accommodation services (4.2% from 3.4%), and clothing and footwear (2.8% from 2.5%).
Housing, water, electricity and gas saw a 6.8% inflation in August from 5.7% in July, mainly due to higher electricity rates, rentals and liquefied petroleum gas.
Meanwhile, inflation as experienced by the poor households, which still remained under 2012-based prices, was at 5.9% in August, steady from July, and higher than 5.3% a year ago.
In a statement, the BSP said the uptick in inflation remains supply-driven, but is monitoring signs of broadening price pressures.
“The BSP is prepared to take further policy actions to bring inflation toward a target-consistent path over the medium term,” it said, noting that upside risks still dominate the inflation outlook due to higher global non-oil prices, fish shortage, spike in sugar prices, and pending fare hike petitions.
The BSP has raised rates by 175 basis points this year, as it tries to tame inflation and support the peso. Its next meeting is on Sept. 22.
The peso closed at a fresh all-time low of P57 against the US dollar on Tuesday, amid the dollar’s continued strength. (Read related story.)
CORE INFLATION SURGESCore inflation, which excludes volatile prices of food and fuel, quickened to 4.6% year on year in August from 3.9% in July and 2.8% in August last year.
The core inflation in August showed the fastest year-on-year growth under the 2018-based prices based on latest available data dating back to January 2019.
Mr. Mapa said the PSA board in its August meeting approved the removal of some items with high volatility from the overall headline inflation to get the core inflation.
The 10 commodities excluded from the calculation of the core inflation rate are cereals (9.35% weight); meat, fresh chilled or frozen (4.82%); fish, live, fresh, chilled or frozen (4.17%); dates, figs, and tropical fruits, fresh (1.34%); other vegetables, fresh or chilled (0.69%); fruit-bearing vegetables, fresh or chilled (1%); electricity (4.55%); liquefied carbons (1.27%); diesel (0.60%); and gasoline (1.77%).
Colegio de San Juan de Letran Graduate School Associate Professor Emmanuel J. Lopez said in an e-mail that core inflation rate typically includes “common and essential” products purchased by consumers “so it is expected to lead the increase in prices considering it has a relatively higher demand.”
“Core inflation is on the uptrend and that’s not a good sign,” Nicholas Antonio T. Mapa, senior economist at ING Bank N.V. Manila, said in an interview with BusinessWorld Live on Tuesday.
In a separate e-mail, ING’s Mr. Mapa said this shows that second-round effects and demand-side pressures are “clear and present.”
“This suggests that elevated prices may be here with us for much longer as more items in the CPI basket become ‘infected’ with high inflation,” he added.
University of Asia and the Pacific Senior Economist Cid L. Terosa said in an e-mail that prices of discretionary services such as restaurants, accommodations, and personal services, lifted core inflation higher last month.
“Prices of imported inputs used by manufacturing industries led to higher prices for some manufactured products… These sectors passed on the increase in the cost of inputs, operations, and services to consumers. This trend was evident in the higher prices of items sold by fastfood outlets and stores,” Mr. Terosa said.
OUTLOOKFinance Secretary Benjamin E. Diokno said inflation is expected to remain elevated for the rest of the year, with the peak seen within the third quarter but slowing in the fourth quarter.
“(Inflation) is seen to fall within the 4.5-5.5% DBCC (Development Budget Coordination Committee) assumption for 2022,” he said on Twitter.
The Marcos administration will continue to provide targeted support for sectors most affected by high inflation.
“Measures include fuel subsidies for the transport sector, fuel discounts for farmers and fisherfolk, and social pension for indigent senior citizens,” Mr. Diokno said.
He said the government will also implement measures to help improve local production and ensure an adequate food supply.
“It is our top priority to ensure that Filipino households have sufficient and healthy food on their table, especially the poorer sector of the society. We will continue implementing programs that reduce transport and logistics costs to bring inflation down and to protect the purchasing power of our consumers,” Socioeconomic Planning Secretary Arsenio M. Balisacan was quoted as saying in a statement on Tuesday.
ING’s Mr. Mapa said economic growth is expected to moderate in the second half of the year due to high inflation, rising interest rates and ballooning National Government debt.
“We saw a very good print in [the first half] but because of high inflation, rising interest rate environment, and fiscal handicap, high debt levels that we have, we are expecting growth to really slow down in the near term,” he said.
Mr. Terosa said he expects inflation to be slightly lower than the BSP’s forecast of 5.4% for the year, as global oil and food prices appear to be declining.
“If domestic supply issues of certain commodities such as flour, wheat, sugar and some vegetables and fruits are effectively addressed, the inflation rate for the year will definitely fall below the forecast of the BSP,” he said. — with Diego Gabriel C. Robles
