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Philippines: Rebasing tempers January inflation to over 2-year low
MANILA, Philippines (Update 1, 11:30 a.m.) — Price growth continued to slow in January to post its softest print in over two years, with analysts attributing the subdued reading to rebasing of consumer price index (CPI) used to measure inflation.
Inflation picked up 3% year-on-year in January, the Philippine Statistics Authority reported Friday. This was the first monthly reading that used 2018 as the new base year following a rebasing that is done periodically to capture changes in households’ consumption patterns over time.
The latest inflation print was slower compared to the rebased December figure of 3.2%. Jun Neri, lead economist at Bank of the Philippine Islands, said “the new base year improves the price optics a lot.”
Nicholas Mapa, senior economist at ING Bank in Manila, agreed with Neri, adding that “price pressures remain” despite the favorable base.
“Inflation clocked in higher than market expectations for a 2.8% pickup in prices (2018 base),” Mapa said.
“Going forward, we expect upward pressure on inflation to extend into the year as supply side bottlenecks persist and demand recovers. Imported crude oil remains at multi-year highs while pressure on the Peso will only heighten imported inflation,” he added.
Michael Enriquez, chief investment officer at Sun Life Investment Management and Trust Corp, pointed out that inflation last month got a favorable base because “2018 was a high inflation year”. To recall, inflation reached near-decade highs in 2018 due to supply problems that were compounded by imposition of higher taxes on fuel and “sin’ products at the time.
“The government just needs to align the rebasing to the gross domestic product base of 2018,” Enriquez said in a Viber message.
The redefined weights of consumer goods and services meant slight adjustments. The 2018 base year was based on the PSA’s Family Income and Expenditure Survey. Some like the food basket saw its share in the total inflation basket inch down 37.75% from 38.24% in 2012 data.
But data showed food inflation still exerted upward pressures. PSA reported that Filipino diet staples such as cooking oils and fats (8.5%), sugar and desserts (2.8%), bread and other bakery products (2.7%) and processed food (1.9%) still recorded annual increases last month.
Inflation was still observed in transport fares (7%), household furnishing, personal care (2.2%) and clothing and footwear (2%), facing the same price pressures that analysts warned.
Meanwhile, only inflation for impoverished Filipino families remained anchored to 2012 prices as the PSA is still in the process of shifting to the new base year. Inflation for the poor waned to 3.2% year-on-year in January, a marked slowdown compared to the 4.9% recorded in January 2021.
With the favorable inflation print, the National Economic Development Authority said they would push to make the prices of corn competitive, which saw an inflation of 27.7% in January from 16.5% in December last year.
“We are taking a more proactive approach in promoting the development and competitiveness of corn. We are doing this to help ease prices of sources of protein such as meat and fish, which are still among the top drivers of our country’s overall inflation,” said Socioeconomic Planning Secretary Karl Kendrick T. Chua.
Notwithstanding elevated prices of food, BSP Governor Benjamin Diokno, said this was positive news.
“It supports the narrative that inflation is on its downward trajectory. Based on a more recent base Year (2018), last year’s inflation rate averaged 3.9%, down from 4.5%, and within the target range of 2-4%,” Diokno said.
The print was consistent with the BSP’s expectations it would decelerate in the coming months.
“Given a manageable inflation outlook, the BSP sees ample scope to keep a patient hand on its various policy levers, while keeping an eye on potential risks to inflation and the financial system,” the BSP added.
Source: https://www.philstar.com/business/2022/02/04/2158522/rebasing-tempers-january-inflation-over-2-year-low