Inflation hits 26-month high in February

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The consumer price index rose 4.7% from a year earlier, the second straight month that the headline figure went beyond the government’s 2%-4% annual target range. — Photo by Michael Varcas, The Philippine Star

Consumer prices rose faster for a fifth straight month to a 26-month high in February as food prices continued to surge, the Philippine Statistics Agency reported on Friday.

Preliminary data from the PSA showed headline inflation at 4.7% last month, picking up from 4.2% in January 2021 and 2.6% in February 2020.

The February inflation result marked the fastest pace since the 5.1% in December 2018.

The latest headline figure is a tad lower than the 4.8% median in a BusinessWorld poll conducted late last week but falls within the 4.3%-5.1% estimate given by the Bangko Sentral ng Pilipinas (BSP) for February.

BSP Governor Benjamin E. Diokno reiterated the uptick appears to be “transitory,” reflecting the impact of the African Swine Fever (ASF) on food prices, higher global oil prices and weather-related disturbances.

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“The overall balance of risks to future inflation continues to lean toward the downside owing mainly to the continued uncertainty caused by the pandemic on domestic and global economic activity. Meanwhile, upside risks could emanate from the possibility of an early roll-out of COVID-19 (coronavirus disease 2019) vaccines in the Philippines,” he said in a Viber message to reporters.

Mr. Diokno also said the near-term inflation caused by supply-side shocks will not require a monetary response “unless they lead to second-round effects.”

Year to date, February inflation settled at 4.5%, beyond the BSP’s 2-4% target for the year.

Core inflation, which discounted volatile prices of food and fuel, stood at 3.5% in February, picking up from 3.4% the previous year and 3.2% a year earlier. It averaged 3.5% so far this year.

The PSA attributed the uptrend in headline inflation mainly to the uptick in the heavily-weighted food and non-alcoholic beverages at 6.7% from 6.1% in January.

It also noted higher annual increases in the following commodity groups: alcoholic beverages and tobacco (12.2% from 11.7% in January); housing, water, electricity, gas, and other fuels (0.9% from 0.5%); health (2.9% from 2.5%); transport (10.4% from 8.7%); communication (0.3% from 0.2%); and restaurant and miscellaneous goods and services (3.2% from 3%).

The food-alone index accelerated to 7% in February from 6.6% the previous month, and 2.1% a year ago.

Among select food items, faster price increases were observed in meat (20.7% from 17.1% in January); fish (5.1% from 3.7%); oils and fats (3.3% from 2.9%); food products not elsewhere classified (4.6% from 3.2%); and rice (0.5% from zero percent).

Meat prices have surged in recent months, due to supply constraints amid the ASF outbreak.

Similarly, the February inflation rate for the bottom 30% of households picked up to 5.5% from 4.9% in January 2021 and 2.1% in February 2020. The inflation rate for this segment was the fastest since the 6.3% reading in December 2018.

UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said the acceleration in transport prices came from tricycle, jeepney and bus fares.

“The ‘new normal’ in public transport, with fewer people allowed to ride and allot for social distancing protocols and other restrictions may be taking a toll on supply of transport with tricycle, jeepney and bus drivers and companies adjusting to the new schemes. Anecdotal stories on the ground of higher charges for transport confirm these observations,” he said in an e-mail.

He also expects meat prices to continue rising due to lack of local supply, but noted this trend is not limited to the country.

In a note sent to reporters, ANZ Research economists Sanjay Mathur and Kanika Bhatnagar said most of the components in the consumer price index will “remain subdued” despite price changes in the more volatile food and transport subindices.

“As such, we see no compelling reason for the BSP to exit its accommodative monetary policy stance this year. However, we are cognizant of the possible ‘second-round’ impact of higher food and fuel inflation on inflation expectations and spill-over effects to the prices of other goods and services,” they said.

ING Bank NV Bank Manila Senior Economist Nicholas Antonio T. Mapa said he expects the central bank to “remain sidelined for 2021 while inflation will likely remain elevated in the near term before gradually decelerating by the [third quarter].”

For JPMorgan’s Research Analyst Milo Gunasinghe: “Headline inflation is set to remain around current levels and above the BSP target in coming months, and likely falling back into the target range in 3Q, considering base effects on fuel prices picking up despite food price pressures likely subsiding. We think the BSP will stay on hold through 2021 and maintain their accommodative policy stance given the fragile economic recovery,” he said.

“Any second-round effects from the transitory supply-side pressures would likely cause a shift in this view,” he added.

The BSP’s Monetary Board at its first meeting on Feb. 11 kept key policy rates unchanged.

The central bank last year slashed rates by a total of 200 bps to provide support to the virus-stricken economy. This brought down the overnight reverse repurchase, lending, and deposit rates to current record lows of 2%, 2.5%, and 1.5%, respectively.

The Monetary Board will next meet on March 25 to discuss policy. — Lourdes O. Pilar with inputs from Luz Wendy T. Noble

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