Philippines: Inflation likely up in April
Philippine headline inflation likely picked up in April after hitting a two-month low in March, analysts polled by The Manila Times said.
Projections for the month ranged from 4.5 to 4.8 percent with a 4.6-percent average, slightly higher than the 4.5 percent recorded in March.
Inflation in April last year settled at 2.2 percent.
The Philippine Statistics Authority (PSA) will release official April inflation data on May 5.
- Inflation likely up anew in March
HSBC Global Research forecast inflation to hit 4.8 percent.
“Low base effects from the previous year are likely to keep headline prices above the Bangko Sentral ng Pilipinas’ (BSP) 2- to 4-percent target range for much of the year. That said, supply-side issues that persisted throughout most of the Q1 (first quarter) 2021 have now largely eased, which is good news for policymakers,” it said in a report.
“The biggest issue facing the country now remains the elevated number of Covid-19 (coronavirus disease 2019) cases, which has substantially dented economic activity,” it added.
HSBC said the BSP in its future policy meetings is expected to focus more towards growth and less towards inflation.
An analyst from ING Bank Manila and Security Bank Corp. (SBC) projected inflation to settle at 4.7 percent.
ING Bank Manila senior economist Nicholas Mapa said the uptick will be largely due to base effects and a sustained acceleration in transport costs.
“Food prices remain elevated but continue to soften modestly as slowing inflation for fruits and vegetables offsets stubbornly high meat costs. Meanwhile, utility prices also dipped only to be offset by accelerating transport costs tagged to transport fares and retail pump prices,” said Mapa.
“Recent price dynamics point to supply side oriented disturbances causing the uptick in headline inflation, tied to year-on-year increase in crude oil prices as well as pandemic-induced social distancing and minimum health standards,” he added.
Mapa said pressure on the food basket will continue to be driven by higher prices of meat.
He pointed out that demand pull factors will remain relatively absent.
“The ECQ (enhanced community quarantined) and MECQ (modified ECQ) all but ensure that demand side pull inflation stays soft with inflationary pressures emanating mostly from the cost push side. As such, we can expect inflation to decelerate in the coming months should cost push factors like ASF (African swine fever) be mitigated and when base effects related to the one-time increase in transport fares and personal services wash out by 3Q (third quarter),” said Mapa.
Mapa said the possible slowdown inflation in the coming months coupled with the economic challenges will lead to the BSP to retain its policy accommodation.
“Any deviations from this path will likely torpedo the already tentative recovery and stifle the recovery efforts with little to show for in terms of fighting inflation,” he said.
SBC chief economist Robert Dan Roces, for his part, said the higher inflation in April gave a forecast range of 4.5 to 4.9 percent.
“We factored in a slight uptick in food prices with meat costs up; pork price caps have expired while the executive order (EO 128) reduced tariffs on pork imports only recently kicking in. Fish remain steady, while vegetables and fruits continue their deceleration,” said Roces in a report.
Roces also believes that the transport basket inflation may have accelerated due to private fuel costs while transport fares remain elevated due to the one-off development of banning more than 1 passenger for tricycles.
According to Roces, headline inflation will likely average at 5 percent this year.
“A low base from 2020 will keep readings above 4 percent, and we are still factoring in some inflationary risks from spikes in international oil prices when production is revived as global demand returns. We expect the Bangko Sentral ng Pilipinas (BSP) to keep rates steady as it views inflation this year to be transitory and also to bolster the economic recovery,” said Roces.
“BSP will only consider monetary policy actions should second-round effects such wage effects and inflation expectations become unreasonable,” he added.
Effects of quarantine measures
Rizal Commercial Banking Corp. chief economist Michael Ricafort, meanwhile, said inflation is seen to settle at 4.5 percent as inflationary pressures likely eased due to the tighter quarantine measures.
Ricafort said that on the supply side, better weather conditions could support the easing of prices of food while a stronger peso also likely helped reduce import costs and overall inflation during the month.
“Offsetting factors include the pick up in global oil prices to among 1-month highs and also among 15-month highs, as well as the recent increase in major global commodity prices, some of which to near decade-highs recently, thereby could lead to higher prices of imported global commodities, some of which could be passed on to consumers or could absorbed by producers amid some reduction in pricing power due to the Covid-19 pandemic,” said Ricafort.
Ricafort said that in the coming months, the proposed temporary 1-year reduction in pork import tariffs and the increase in pork import volumes would help reduce meat prices and overall inflation.
“Monetary policy would continue to be accommodative, with the key local policy rate likely to remain at the record low of 2 percent for now, in view of the ECQ/MECQ in NCR Plus since the latter part of March 2021 that significantly reduced economic activities,” he said. NCR Plus covers the National Capital Region and the provinces of Bulacan, Laguna, Cavite and Rizal.
“Thus, the economy still needs all the support measures that it could get to help mitigate the adverse economic effects of the Covid-19 hard lockdowns, at the very least, as well as support the country’s economic recovery program from Covid-19, as accommodative monetary policy could still do more of the heavy lifting in view of limited funds for any additional stimulus measures, going forward,” Ricafort added.