July 6, 2022
MANILA —High food and oil prices haven’t peaked yet, the Philippine Statistics Authority (PSA) said on Tuesday (July 5), even as inflation or year-on-year price hikes hit 6.1 percent in June, the highest rate since the rice crisis of 2018.
With high inflation expected to linger for longer, new Bangko Sentral ng Pilipinas (BSP) Governor Felipe Medalla was buckling down to wrangle with consumer prices, which he said will “in all likelihood” exceed the government’s target this year and take “many months” to sink back below 4 percent, or the level deemed manageable and conducive to economic growth.
National Statistician Dennis Mapa told a press briefing that elevated food, fuel and transport costs, as well as “sin” products, like cigarettes and alcoholic drinks, contributed the most to last month’s headline inflation rate, which matched November 2018’s 6.1 percent.
Inflation in food and non-alcoholic beverages—6 percent in June—was the highest since the peak of the pork supply shortage early last year, while transport inflation of 17.1 percent was the highest since August 2008 when the Philippine economy was badly hit by the global financial crisis, Mapa said.
Just like when inflation peaked at 6.9 percent in September and October 2018 due to rice shortage, Mapa said reports from PSA personnel on the ground showed that prices “will still move upward” in the coming months. “It’s a very steep slope every month,” he said of the recent months’ inflation rates.
In June, nine of the 13 commodity groups in the consumer price index (CPI) basket of goods posted higher prices. Price hikes were also present in all of the country’s 17 regions that month — a phenomenon which Mapa said was not the usual. “It’s not extraordinary, but the impact is wide,” he said.
While the PSA could not specify if supply or demand was driving the recent spike in domestic prices, Mapa acknowledged it was mostly coming from costly oil globally spilling over locally, although gradually, especially on food products.
He said bread prices would also be affected by tight global wheat supply amid Russia’s prolonged invasion of Ukraine as both countries were major producers supplying the world market. Food alone accounted for over a third of the nationwide CPI inflation rate, and over half of the inflation affecting poorer Filipinos.
A new feature in the PSA’s monthly inflation reports, data showed that the so-called purchasing power of the peso eroded to 0.87 in June — the lowest to date — since the CPI was rebased to the year 2018. Mapa said this meant that fewer goods can be bought now compared to every P1 four years ago.
Medalla said that “amid signs of recovery from the impact of the COVID-19 pandemic, the global economy will be confronted by headwinds from Russia’s invasion of Ukraine, which can be expected to have continued uneven knock-on effects on domestic inflation and supply chain dynamics.”
In his first speech as BSP chief on July 4, Medalla said the recent large policy rate hikes of the United States Federal Reserve in reaction to an unanticipated US inflation spike is causing nearly all currencies — including the Philippine peso — to significantly depreciate against the US dollar.
“This year, sad to say, the average inflation will, in all likelihood, breach the national government’s target of 2 to 4 percent by quite a bit,” Medalla said. The BSP had projected headline inflation to average 5 percent this year.
“Our current runs show that average inflation will remain elevated,” Medalla added. “Given the size of the global supply shocks and the uncertainty when the Ukraine war will end, it will take more than a few months, many months, before the headline inflation to go down below 4 percent.”
Deutsche Bank said in a commentary that Philippine inflation will average 4.6 percent this year and 3.5 percent in 2023, while Morgan Stanley puts it at 4.9 percent this year and 3.6 percent next year.
ING Bank thinks that the 6.1-percent inflation in June “will be enough to convince the BSP” to be more aggressive and raise its policy rate by 50 basis points in August.
Medalla said the BSP has “ample” policy space considering that Philippine banks are well-capitalized and the country’s foreign exchange reserves are “robust.”