Slower annual increase in food and non-alcoholic beverages pulled inflation in December to 3.6 percent, the slowest posted for the year 2021.
The full-year average of 4.5 percent, however, still breached the government’s target range of between 2 and 4 percent and was faster relative to the average inflation in 2020 at 2.6 percent.
The Philippine Statistics Authority (PSA) said the downward trend of the December overall inflation was primarily brought about by the slower annual increase in food and non-alcoholic beverages at 3.1 percent in December 2021, from 3.9 percent in November 2021.
Lower inflation recorded in the indices of the following commodity groups also contributed to the downward trend in the overall inflation during the month: alcoholic beverages and tobacco; clothing and footwear; furnishing, household equipment and routine maintenance of the house; health; transport; recreation and culture; and restaurant and miscellaneous goods and services.
Inflation rates were higher in the indices of housing, water, electricity, gas and other fuels at 5.0 percent, and communication at 0.3 percent.
Core inflation, which excludes selected food and energy items, also slowed down further to 3.0 percent in December 2021, from 3.3 percent in November 2021. In December 2020, core inflation was observed at 3.3 percent.
Benjamin Diokno, Bangko Sentral ng Pilipinas (BSP) governor, said the December 2021 figure was within the BSP’s forecast range of between 3.5 and 4.3 percent and stressed that inflation is “projected to ease close to the midpoint of the target range in 2022 and 2023.”
“The supply disruptions and agricultural damages from typhoon Odette will likely result in a temporary uptick in the prices of food items and other necessities over the near term. As with previous episodes of natural disasters, the effective implementation of non-monetary government intervention measures to ensure adequate domestic food supply must be sustained in order to mitigate potential supply-side pressures on inflation,” Diokno said.
“The BSP will incorporate the typhoon’s impact into its projections once firm estimates become available. At the same time, the implementation of reconstruction efforts and rehabilitation programs in areas damaged by the storm will be essential to support economic recovery and prevent job losses,” Diokno added.
Karl Kendrick Chua, socioeconomic planning secretary, said the decline was primarily driven by slower food inflation. In particular, vegetable inflation fell to -10.0 percent from -1.8 percent, while fish inflation also decelerated to 7.0 percent from 7.9 percent in the same period.
However, Chua said meat inflation slightly increased to 11.3 percent in December from 10.7 percent in November 2021, partly due to the increase in pork inflation to 17.9 percent from 17.3 percent.
“With the National Capital Region (NCR) and the neighboring provinces of Cavite, Rizal, and Bulacan now under alert level 3, it is important to ensure affordable food prices and the continued delivery of goods and services. To temper inflation in meat, especially pork, the government is working to increase local supply and ensure regular unloading of stocks from cold storages,” he said.
To help ensure stable pork supply throughout this year, the National Economic and Development Authority reiterates its recommendation to extend the validity of Executive Order No. 133 to December 2022.
Chua also called for the distribution of more imported pork outside the NCR, noting that meat is among the top three drivers of inflation in 14 out of 16 regions outside the NCR in December 2021.
“The emergence of new variants has shown us that the COVID-19 virus is not going to go away easily. The good news is even as we temporarily impose more stringent restrictions to contain the spread of the Omicron variant, we have learned to manage the risks and live with the virus. Economic prospects in 2022 still remain promising, and we urge everyone to play their role in the recovery by getting vaccinated, availing of booster shots, and strictly adhering to the minimum public health standards,” Chua said.
Nicholas Mapa, ING Bank Philippines senior economist, said despite the breach last year, several factors point to inflation “staying more subdued in 2022.”
“The PSA shift to 2018 as base year for CPI inflation calculations will likely translate to a one-off favorable base effect for lower price gains this year. 2018 was the year where inflation last breached the target, with BSP allowing inflation to surge to 6.7 percent.
Developments related to the global oil market also point to a moderation in crude oil prices as OPEC opted to increase production to help alleviate a tight market. Third, despite strong gains in terms of GDP growth, demand dynamics suggest that the economy continues to operate below potential with the output gap yet to be closed. We expect inflation to settle within target for the most part of the year,” Mapa said.
Mapa added that although Diokno has indicated he would like to continue to keep rates untouched “for as long as necessary,” the central bank has only a narrow window to keep rates untouched for just a bit longer.
“Indications that the Fed will likely be hiking rates by 3 or more times this year suggest that BSP may need to adjust its own policy stance, regardless of inflation or growth dynamics. BSP has indeed helped solidify the economic recovery but 2022 will likely be the year of the Fed rate hikes and BSP could consider adjustments as early as second quarter of this year,” Mapa said.
