The continued volatility in global oil and non-oil prices due to the conflict in Ukraine pushed the country’s inflation to its fastest in three years, data from the Philippine Statistics Authority (PSA) showed.
Consumer prices rose by 4.9 percent in April from the previous month’s 4 percent, the highest since 2019 after the consumer price index was rebased to 2018 from 2012.
Year-to-date inflation settled at 3.7 percent, within the 2 to 4 percent target for 2022.
PSA said the increase in the country’s inflation was mainly brought about by the higher annual increase in the index for food and non-alcoholic beverages at 3.8 percent; transport, 13 percent; and housing, water, electricity, gas and other fuels, 6.9 percent.
Also contributing to the uptrend were the higher annual increments in the indices of alcoholic beverages and tobacco; clothing and footwear; recreation, sport and culture; and personal care, and miscellaneous goods and services.
PSA said annual upticks slowed down in the indices of health at 2.4 percent; and restaurants and accommodation services at 2.8 percent.
Benjamin Diokno, Bangko Sentral ng Pilipinas (BSP) governor, said inflation could “settle above the government’s target range in 2022, before decelerating back to target in 2023 as supply-side pressures ease.”
“While there are signs that inflation expectation is higher for 2022, it remains broadly anchored to the target in 2023,” Diokno, in a statement, said.
Diokno said upside risks over the near -term continue to emanate from the shortage in domestic food supply as well as from the potential impact of higher oil prices on transport fares.
Downside risks are linked mainly to the lingering threat of coronavirus disease 2019 (COVID-19) infections, “as the emergence of new variants could temper the global economic recovery and prompt the reimposition of containment measures.”
“Latest assessment also indicates that domestic economic activity has gained stronger traction with the easing of remaining mobility restrictions. However, heightened geopolitical tensions and a resurgence in COVID-19 infections in some countries have also clouded the outlook for global economic growth. Supply-chain disruptions could also contribute to inflationary pressures, and thus warrant closer monitoring to enable timely intervention in order to arrest potential second-round effects,” Diokno said.
Karl Kendrick Chua, socioeconomic planning secretary, said the government is “accelerating a comprehensive set of interventions to mitigate the impact of rising commodity prices.”
“World commodity prices remain high as a consequence of the ongoing Russia-Ukraine war.
The impact is felt domestically not just on food and basic goods but also on transport and utilities,” Chua said.
Chua said the Economic Development Cluster (EDC) recommended the extension of Executive Order (EO) Nos. 134 and 135 and a temporary reduction of the most favored nation (MFN) tariff rate for corn to 5 percent in-quota and 15 percent out-quota with a minimum access volume of 4 million metric tons until December.
EO 134 aims to expand supply and further reduce prices of pork by extending the lower tariff of 15 percent in-quota and 25 percent out quota. EO 135 seeks to diversify rice sources by temporarily reducing MFN tariff rates on imported rice to 35 percent from 40 to 50 percent.
The EDC also recommended importing more wheat and producing more cassava as feeds substitute to augment the alternatives for corn.
Also, the government is providing fuel subsidies for public utility vehicle (PUV) drivers and farmers to address rising fuel prices.
As of April 30, around 180,000 PUV drivers and operators have received their P6,500 fuel subsidy from the Pantawid Pasada program.
The Department of Energy also continues its efforts to secure P1 to P4 per liter discounts from private oil companies for the public transport sector. The Department of Agriculture is implementing a fuel subsidy program for 158,730 corn farmers and fisherfolk.
The EDC also recommended temporarily reducing the MFN tariff rate for coal to zero until December and maintaining its buffer stock at the current 30 days minimum inventory.
“The government is accelerating the implementation of these interventions to temper the impact of inflation and rising prices. In the meantime, as we shift more areas in the country to Alert Level 1, we expect to accelerate our recovery and increase our economy’s resilience from external shocks,” Chua said.
Diokno said the Monetary Board will review its assessment of the inflation outlook and macroeconomic prospects with the release of the first quarter gross domestic product growth outturn, along with evidence of possible second round effects and developments in inflation expectations during the monetary policy meeting on May 19.
Even while upside risks to inflation have increased as higher oil prices due to geopolitical tensions start to impact local commodity costs, the policymaking Monetary Board last March maintained for the 11th consecutive session the key rates of the BSP.
BSP’s overnight reverse repurchase facility remains at 2.0 percent. The interest rates on the overnight deposit and lending facilities were likewise kept at 1.5 percent and 2.5 percent, respectively.
Bank of the Philippines Islands (BPI) said inflationary pressures will likely worsen “if the BSP doesn’t hike its policy rate soon.”
In a statement, BPI economists said without any rate hikes from the BSP, “the interest rate differential between the Philippines and the US will be close to zero and will turn negative in 2023.”
“A situation like this will likely result to a substantial depreciation of the Peso and may de-anchor inflation expectations further,” BPI said.
“We continue to expect a 75 basis points adjustment in the policy rate this year from 2 percent to 2.75 percent. Even with this magnitude of increase, the policy rate will still be below historical levels and it may not have a substantial impact on growth and employment,” BPI added.
BPI also pointed out the impact of rate hikes is usually gradual and the economy has the capacity to absorb slightly higher interest rates, especially now that demand is almost back to pre-pandemic level.
“A surge in consumer prices due to oil might eventually hurt consumer spending and lead to slower growth. Hiking the policy rate will serve as a stabilizing tool that could temper the depreciation of the peso. Also, this will likely prevent a substantial decline in dollar reserves that could lead to more volatility in the local markets,” the economists from the bank added.
