Consumer prices continued to accelerate in June, breaching the 6 percent mark, brought about by the higher annual growth rate in the indices for food and non-alcoholic beverages and transportation.
The Philippine Statistics Authority yesterday said inflation hit 6.1 percent in June, the highest recorded inflation since October 2018.
Inflation in the previous month stood at 5.4 percent and in June 2021, 3.7 percent.
Average inflation for the first half of the year was at 4.4 percent.
“The uptrend of inflation for June 2022 was primarily brought about by the higher annual growth rate in the index for food and non-alcoholic beverages at 6 percent, from 4.9 percent in the previous month. This was followed by transport whose index grew by 17.1 percent annually, from 14.6 percent in May 2022,” Dennis Mapa, national statistician and civil registrar general, said in a statement.
The indices of alcoholic beverages and tobacco; clothing and footwear; housing, water, electricity, gas and other fuels; furnishings, household equipment and routine household maintenance; health; recreation, sport and culture; and personal care, and miscellaneous goods and services also accelerated.
However, the annual mark-up in the information and communication index decelerated to 0.5 percent.
The indices of education services, restaurants and accommodation services, and financial services retained their previous month’s inflation rates.
Mapa said inflation for food at the national level rose further to 6.4 percent in June from 5.2 percent in May.
“The acceleration in the food inflation was primarily influenced by the higher annual growth in the meat and other parts of slaughtered land animals index at 8.1 percent. Also contributing to the uptrend in the food inflation was fruits and nuts food group which registered an inflation rate of 1.1 percent, from -2.4 percent in the previous month,” Mapa said.
Inflation in the National Capital Region (NCR) similarly increased further to 5.6 percent from 4.7 percent in the previous month. Inflation in areas outside NCR (AONCR) rose further to 6.3 percent.
All the 16 regions in AONCR registered higher inflation during the month. Cordillera Administrative Region and Central Luzon had the highest inflation rate of 7.5 percent, while the Bangsamoro Autonomous Region in Muslim Mindanao remained as the region with the lowest inflation at 3.1 percent.
‘Not peaked yet’
Economists at the Bank of the Philippine Islands (BPI) said despite the jump in June, “inflation has probably not peaked yet.”
“The headline figure may continue to go up until October assuming oil prices will stay at current levels. In this scenario, average inflation is expected to settle between 5 to 5.5 percent (whole year 2022),” BPI said.
The bank said the contribution of food to inflation will likely expand further in the coming months given the shortage of certain items in the international market amid the conflict in Ukraine and the trade restrictions being put in place by exporting countries like India and Indonesia.
“The contribution of transport to inflation will also likely expand in the coming months because of the recently approved fare hike for jeepneys. With road transport services accounting for 4.29 percent of the consumer basket, we expect a 0.2 percent increase in the upcoming inflation prints as a result of the P2 hike in jeepney fares,” BPI said.
With inflation still on the rise, BPI sees the policymaking Monetary Board to “continue hiking key rates until the end of the year.”
“Assuming the central bank will continue to hike gradually, the pressure on the peso will remain substantial since faster rate hikes in the US will make the dollar more attractive.
The depreciation of the peso will likely translate to more inflation especially now that the economy is becoming more reliant on imported goods. A higher inflation print in the coming months may lead to a situation that could force the BSP to do bigger hikes, similar to what happened in 2018. Hiking the policy rate by 50 bps now rather than later may help in mitigating the risk of bigger hikes in the future that could cause more volatility in the markets,” BPI said.
Security Bank said inflation’s June uptick is enough of a justification for a 50 basis points (bps) rate hike by August.
“In line with our expectations, there is additional pressure for the central bank to frontload its rate hike with inflation gaining momentum. We now expect the BSP to hike by 50 bps this August 18, 2022, as inflation pressures mount,” it said.
“We estimate inflation to average 5.1 percent this year,” it added.
‘Concerning, but not surprising’
Aris Dacanay, HSBC economist for Asean, said inflation breaching the 6-percent mark is concerning but not surprising.
“The major contributors to headline inflation are still a reflection of high oil and food prices abroad… All in all, inflation remains ‘traceable’: we can still track where price pressures are coming from,” Dacanay said. He, however, stressed the figures also suggest inflationary expectations, albeit possibly increasing, remain manageable so far.
“Spillover effects from higher transport and food inflation haven’t been as pronounced. Half of the core basket had a slight increase in inflation from May to June, but only 1 of 10 of the core items had inflation rates above the BSP upper bound target of 4 percent. The rest were still well below it,” he said.
“Nonetheless, inflation may increase even further in the next month or so. Although oil prices have started to moderate, the sharp depreciation of the peso during the latter half of June will likely put upward pressure on domestic prices throughout July. Transport CPI will also likely increase as authorities raised jeepney fares. Both June and July fare hikes will likely lead to a hefty increase of overall inflation by 0.6-0.7ppt,” Dacanay added.
“There’s a lot of time between today and the Monetary Board meeting on the 18th of August to gather and scrutinize more data. Apart from the daily FX data, statistical authorities by then would have published the GDP data for the second quarter of 2022 as well as the trade statistics for May and June. The BSP will have more data to see whether the risk of derailing growth is minimal or not. An upside surprise to growth, similar to the one in the first quarter, will possibly increase the risk of the BSP changing gears and hiking more aggressively,” he said.
Non-monetary measures needed
Michael Ricafort, chief economist of Rizal Commercial Banking Corp., said non-monetary measures and not necessarily by outright policy rate hikes may be more effective to address supply-side pressures.
“Inflation in recent months largely due to supply-side factors, not due to higher demand.
So any local policy rate hike may not be necessarily effective in addressing these supply-side inflationary pressures, largely due to external/exogenous factors such as higher global oil/energy and other commodity prices largely due to Russia’s invasion/war with Ukraine since February 24; all of which are beyond the country’s reasonable control. Thus, these supply-side inflationary pressures could be partly addressed by non-monetary measures and not necessarily by outright policy rate hikes,” Ricafort said.
Ricafort cited increased subsidies for the transportation and agriculture sector could have somewhat mitigated risks of passing on higher oil prices.
He added increased conservation measures to reduce reliance on imported oil/energy would also help mitigate the adverse effects on inflation and on economic recovery prospects.
