Inflation eases to lowest in 12 months

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Inflation in December eased to 3.6%, the lowest in 12 months. — PHILIPPINE STAR/ MICHAEL VARCAS

By Bernadette Therese M. Gadon, Researcher

PHILIPPINE INFLATION in December eased to its lowest in 12 months, due to the slower increase in the prices of food and transport, but the full-year inflation still exceeded the central bank’s 2-4% target band.

Preliminary data from the Philippine Statistics Authority (PSA) showed headline inflation slowed to 3.6% in December, from 4.2% in November.

December’s inflation print was the slowest reading in 12 months or since the 3.5% reading in December 2020.

The headline figure is lower than the 3.9% median in a BusinessWorld poll conducted late last week, but falls within the 3.5%-4.3% estimate given by the Bangko Sentral ng Pilipinas (BSP) for the month.

However, this brought the full-year inflation average to 4.5%, higher than the 2.6% recorded in 2020, and breached the BSP’s 2-4% target band as well as the revised 4.4% forecast for the year. This was the highest print in three years or since the 5.2% logged in 2018.

BSP Governor Benjamin E. Diokno on Wednesday said he expects inflation to ease near the midpoint of the 2-4% target for this year and 2023.

“Looking ahead, the BSP stands ready to maintain its accommodative monetary policy stance to support the economy’s recovery while guarding against any emerging risks to its price and financial stability objectives,” he said in a Viber message to reporters.

SLOWER FOOD INFLATIONThe National Economic and Development Authority (NEDA) noted slower food inflation as the main driver of the easing headline inflation in December. In particular, inflation in vegetables, which dropped 10% from the 1.8% decline seen in November, while fish inflation eased to 7% from the previous month’s 7.9%.

Meat inflation, meanwhile, rose to 11.3% from 10.7%, partly due to a 17.9% increase in pork prices from 17.3% in November.

The prices of food and non-alcoholic beverages, which contributed 52.8% to the inflation print, eased to 3.1% in December from the previous month’s 3.9%. This group accounts for the largest chunk (38.3%) of the theoretical basket of goods and services that an average Filipino household consumes.

The food-alone index decelerated to 3.2% in December, from 3.9% in November and 4.9% in December 2020.

Transport prices, which accounted for 37.5% of December inflation, also slowed to 6.1% that month from 8.8% in November. Inflation in petroleum and fuels as well as tricycle fares decelerated to 29.4% (from 42.1% in November) and 1.7% (from 2.6%). Jeepney fares, meanwhile, declined to 0.2% from 0.5% growth in November.

Core inflation, which discounted volatile prices of food and fuel, stood at 3.6% in December — slower than the previous month’s 4.2% but higher than 3.5% a year earlier. It averaged 3.3% in 2021.

Similarly, the December inflation rate for the bottom 30% of households further slowed to 3.3% from 4.2% in November and 4.2% in December 2020. The inflation rate for this segment was the slowest in 14 months or since the 2.9% in October

For the year, inflation as experienced by poor households averaged at 4.8%, higher than 4.3% in 2020.

“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,” Socioeconomic Planning Secretary Karl Kendrick T. Chua said in a statement.

“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 added.

NEDA recommended the extension of validity of Executive Order (EO) No. 133, which allows the increase in minimum access volume for pork, to December 2022 to ensure adequate pork supply throughout the year.

“The emergence of new variants has shown us that the COVID-19 (coronavirus disease 2019) 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,” Mr. Chua said.

Metro Manila is currently under the more stringent Alert Level 3 until Jan. 15 to contain the sudden spike in COVID-19 cases.

ODETTE’S ‘LAGGED EFFECTS’“We had expected food inflation to spike due to storm damage of up to P10 billion which could indicate that the impact on food inflation may be felt in 2022 instead,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in note sent to reporters.

Typhoon Odette (international name: Rai) ravaged the southern part of the country in December.

Based on latest estimates, total agricultural damage is at P10.8 billion.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the normalizing base effects coupled with local oil price rollbacks and non-monetary measures to secure food supply “overshadowed” the damage caused by the typhoon.

“There could still be some lagged effects by the Typhoon Odette storm damage that could have led to some temporary increase in prices/inflation in hard-hit areas especially in January 2022 or even shortly thereafter,” he said in a note sent to reporters.

The BSP said the disruptions brought by Typhoon Odette will likely result in temporary uptick in the food prices 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,” Mr. Diokno said.

“The BSP will have to include the typhoon’s impact into its projections once firm estimates become available,” he added.

ANZ Research Chief Economist Sanjay Mathur and economist Debalika Sarkar welcomed the return of December’s print to the official target band as a “positive development.”

“However, we emphasize the need to maintain vigilance as recent weather-related disturbances could have reversed this moderation. Transport prices, too, can gain momentum in January following the recent rise in crude oil prices. Yet the fading of base effects will be favorable for the headline print,” ANZ Research said in a note.

Mr. Mapa said inflation will stay “more subdued” this year.

“The PSA shift to 2018 as base year for CPI (consumer price index) inflation calculations will likely translate to a one-off favorable base effect for lower price gains this year,” he said, noting that 2018 was the last time inflation breached the central bank target.

Global oil market developments also point to moderation in crude oil prices as the Organization of the Petroleum Exporting Countries opted to increase production to help the tight market, Mr. Mapa said.

“Despite strong gains in terms of GDP (gross domestic product) growth, demand dynamics suggest that the Philippine economy continues to operate below potential with the output gap yet to be closed,” he added.

CPI REBASED TO 2018Separately, the PSA announced the rebasing of its CPI — used to calculate the inflation rate — to a 2018 base from 2012 currently starting next month for the reporting of January 2022 inflation data onwards.

“The rebasing of the CPI is done periodically by the PSA due to the following: (1) to ensure that the CPI market basket continues to capture goods and services commonly purchased by households over time; (2) to update expenditure patterns of households; and (3) to synchronize its base year with the 2018 base year of the Gross Domestic Product and other indices produced by the PSA…,” the agency said.

Aside from the base year, the rebasing will also change the market basket, the weights, and index computation. The new weights for the 2018-based CPI were derived from the spending data of the 2018 Family Income and Expenditure Survey.

The 2018 rebasing is the 12th base period and 11th rebasing for the CPI.