Prices of food and non-alcoholic beverages increased at a faster pace in February, bringing inflation to 3.4 percent, higher than the previous month’s 2.8 percent.
The Philippine Statistics Authority said the uptrend in the overall inflation was primarily influenced by the higher year-on-year increase in the heavily weighted food and non-alcoholic beverages index.
Claire Dennis Mapa, national statistician and civil registrar general, said the index jumped to 4.6 percent last month from 3.5 percent in the previous month.
He added that annual increase of transport and utilities also contributed to the uptrend.
“The top three commodity groups contributing to the February 2024 overall inflation were food and non-alcoholic beverages with 52.1 percent share, restaurants and accommodation services with 15.3 percent share and housing, water, electricity, gas and other fuels with 5.8 percent share,” Mapa said.
In contrast, seven commodity groups registered lower inflation rates during the month – clothing and footwear; furnishings, household equipment and routine household maintenance; health; information and communication; recreation, sport and culture; restaurants and accommodation services; and personal care, and miscellaneous goods and services.
“The indices of education services and financial services retained their previous month’s annual increment of 3.8 percent and annual decrease of 0.6 percent, respectively,” Mapa said.
Core inflation, which excludes selected food and energy items, slowed down to 3.6 percent in February 2024 from 3.8 percent in the previous month.
Possible acceleration
Eli Remolona, Bangko Sentral ng Pilipinas (BSP) governor, said the inflation outturn is consistent with the central bank’s expectations inflation will likely remain within the target range of between 2 and 4 percent due largely to negative base effects, but could temporarily accelerate from the second quarter due to the adverse impact of El Niño weather conditions on agricultural production.
“The risks to the inflation outlook have receded but remain tilted toward the upside. The upside risks to the inflation forecasts are linked mainly to higher transport charges, increased electricity rates, higher oil and domestic food prices, and the additional impact on food prices of a strong El Niño episode. Meanwhile, the implementation of government measures to mitigate the impact of El Niño weather conditions is the primary downside risk to the outlook,” Remolona said.
National Economic and Development Authority Secretary Arsenio Balisacan, however, said the government is intensifying its efforts to mitigate the effects of the El Niño phenomenon and help keep the inflation rate within target.
“As we navigate the economic landscape, it is imperative that we remain vigilant and proactive in our approach to managing inflationary pressures. While we have seen some relief from certain inflation risks, we must not become complacent. The potential impact of a strong El Niño weather pattern on food prices is a significant concern for our community. Rising transportation costs, electricity rates, and volatile oil markets are putting pressure on household finances. Our team is actively formulating robust strategies with the concerned agencies in response to these challenges. We must be agile, adaptive, and forward-thinking,” the government’s chief economic planner stated.
He added international rice prices have started to ease, and local supply is expected to increase with the dry season harvest beginning this month through April.
Balisacan also said the Department of Agriculture is collaborating closely with the International Rice Research Institute to increase the country’s rice production.
El Niño ‘til May
Finance Secretary Ralph Recto said the government is proactively preparing to mitigate the effects of El Niño on inflation, which is forecasted to peak this month and persist until May.
“The government has a comprehensive plan in place — the Reduce Emerging Inflation Now or REIN — to keep the prices of goods and services stable and affordable. The deliberate implementation of REIN will help us keep the inflation rate within manageable levels, especially with the looming threat of El Niño,” Recto said.
“…reducing inflation and protecting the purchasing power of Filipinos is a top priority of this administration. The government and the BSP are working in sync to ensure that both non-monetary and monetary measures prioritize growth and price stability,” he added.
Department of Trade and Industry (DTI) Secretary Alfredo Pascual also stressed government is well-prepared to weather the inflationary pressures.
“While the uptick in inflation rate requires our attention, it is crucial to understand it within the broader context of our dynamic global and domestic economic environments. Underpinned by robust fiscal and monetary policies, we are well-prepared to navigate through these inflationary pressures. We remain steadfast in our balanced approach to economic management – sustaining economic growth while ensuring price stability,” Pascual said.
To keep or to cut
Remolona said the policymaking Monetary Board deems it appropriate “to keep the BSP’s monetary policy settings unchanged in the near term” amid the improvement in inflation conditions.
“The BSP also continues to support the National Government’s non-monetary measures to address supply-side pressures on prices and sustain the disinflation process,” Remolona said.
At its meeting last month, the Monetary Board decided to keep the BSP’s Target Reverse Repurchase (RRP) Rate unchanged at 6.50 percent. The interest rates on the overnight deposit and lending facilities were also kept at 6.0 percent and 7.0 percent, respectively.
The latest risk-adjusted inflation forecast for 2024 was eased to 3.9 percent from 4.2 percent in the previous meeting in December. For 2025, the risk-adjusted inflation forecast is relatively steady at 3.5 percent from 3.4 percent.
Michael Ricafort, Rizal Commercial Banking Corp. chief economist, said further local policy rate pause or even rate cut could already be possible for the coming months.
“Supply-side inflation factors would be better addressed by non-monetary measures to increase the supply and to lower tariffs and prices of local food and other agricultural products,” Ricafort said.
“Inflation already back to within the central bank’s target range of 2 percent to 4 percent would further support the economic recovery narrative, amid the faster growth in purchasing power compared to slower net increase in the prices especially into 2024,” he added.
Aris Dacanay, HSBC economist for Asean, noted the second quarter as a critical period in assessing the policy rate outlook, as the consumer price index (CPI) will continue to accelerate due to base effects and “may potentially breach target.”
“Whether this uptick will be sustained will need to be monitored with retail rice prices very recently easing from its peak but still elevated overall. The good news is that the acceleration wasn’t broad based. Most of the other components of the CPI basket decelerated except for transport, which was widely expected to accelerate due to unfavorable base effects,” Dacanay said.
“We do expect headline CPI to climb even further and potentially breach the BSP’s 2-4 percent target band sometime in the second quarter. Market jitters may add up as inflation nears the upper-bound target of 4.0 percent, more so with risks tilted to the upside as authorities mull a potential P100 across-the-board wage hike. That said, the February CPI figure poses an upside risk to our baseline forecast of the BSP beginning its easing cycle at the same time as the Fed in June,” added Dacanay.
However, Dacanay said if inflation tilts to the upside again or risks to inflation materialize during that period, the central bank may instead cut after the Fed, keeping the BSP rate at 6.50 percent for a longer period than expected.
“Supporting this view is the fact that growth isn’t providing any pressure on the BSP to rush its easing cycle with the Philippines being the fastest growing economy in Asean for 2023,” Dacanay said.