ING Bank sees inflation breaching 5%

Inflation is likely to move past five percent this month after accelerating to a 32-month high in August as price pressures heat up anew due to elevated food and oil prices, according to Dutch financial giant ING Bank.

Nicholas Mapa, senior economist at ING Bank Manila, said the September inflation may pick up further after kicking up to 4.9 percent in August from four percent in July.

“We expect inflation to move past five percent as recent and approaching storm systems will undoubtedly figure into this month’s fruit and vegetable prices,” Mapa said.

The last time inflation breached five percent was in December 2018 at 5.1 percent.

Mapa said fish and meat prices are likely to remain elevated, while energy costs are also expected to stay up as global crude oil prices stayed close to $70 per barrel.

He also said utility companies and retail fuel distributors have recently announced additional rounds of price increases, all adding to the supply side pressure on headline.

Although the pickup in imports may be a sign of renewed demand, the economist explained this also reflects an improvement in domestic production which could help increase the supply of basic goods and services.

“Despite this, the price pressures appear to be accelerating at the worst possible time with base effects unfavorable in September,” Mapa said.

Inflation averaged 4.4 percent from January to August as monthly inflation has been breaching the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP).

Mapa said inflation breached the BSP’s target anew in August with cost-push factors the dominant force behind the resurgence in price gains. He said vegetable, fish and meat prices all conspired to push food inflation to 6.5 percent.

Mapa said crop damage induced by inclement weather in August forced vegetable prices up by 15.7 percent and fish prices higher by 12.4 percent, while African swine fever (ASF) kept meat prices elevated at 16.4 percent.

To make matter worse, he said pricier global crude oil prices have found their way to domestic pump prices at 17.8 percent and utilities with eight percent as LPG costs and Meralco bills are on the rise.

Despite a modest pickup in demand relative to lockdowns last year, Mapa said it is clear that the main factor behind the recent surge is emanating from cost-push factors such as more expensive vegetables, meat and energy related products.

The economist said the BSP continues to face a dilemma, caught between a rock and hard place as monetary authorities attempt to navigate renewed cost-push price resurgence amid an economic recession.

“The central bank has been very aggressive in delivering stimulus although transmission has remained soft with commercial banks not deploying the bevy of liquidity released via monetary easing,” Mapa said.

Adding an angle of complication is the recent depreciation spell of the peso in the months leading to the eventual taper by the US Federal Reserve that continues to add fuel to the inflationary fire.

Source: Philstar

The Philippines’ inflation rate surges to 4.9% in August.

The headline inflation at the national level jumped to 4.9 percent in August 2021, from 4.0 percent in July 2021. This is the highest inflation recorded since January 2019.

With the August 2021 inflation, the Philippines’ average inflation from January to August 2021 stood at 4.4 percent.

In August 2020, inflation rate was lower at 2.4 percent.

The uptrend in the country’s inflation was mainly brought about by the higher annual increment in the index of the heavily-weighted food and non-alcoholic beverages at 6.5 percent during the month, from 4.9 percent in July 2021.

Moreover, recreation and culture index went up by 0.5 percent in August 2021, after recording annual decreases since August 2020.

Annual increases were also higher in the indices of the following commodity groups:

• Alcoholic beverages and tobacco, 10.3 percent;

• Clothing and footwear, 1.8 percent;

• Housing, water, electricity, gas, and other fuels, 3.1 percent;

• Furnishing, household equipment and routine household maintenance, 2.5 percent;

• Transport, 7.2 percent; and

• Restaurant and miscellaneous goods and services, 3.8 percent.

The other commodity groups, i.e., health, communication, and education, retained their previous month’s annual growth rates.

Excluding selected food and energy items, core inflation, likewise, picked up to 3.3 percent in August 2021, from 2.9 percent in July 2021. In August 2020, core inflation was posted at 3.1 percent.

For food index, the annual growth rate at the national level accelerated to 6.9 percent in August 2021, from 5.1 percent in July 2021. It was observed at 1.7 percent in August 2020.

By specific food item, double-digit annual growth rates were noted in the indices of meat at 16.4 percent; fish, 12.4 percent; and vegetables, 15.7 percent.

Annual hikes were also higher in the indices of the following food groups:

• Corn, 8.7 percent;

• Other cereals, flour, cereal preparations, bread, pasta, and other bakery products, 1.8 percent;

• Oils and fats, 4.8 percent;

• Sugar, jam, honey, chocolate and confectionery, 1.2 percent; and

• Food products not elsewhere classified, 1.6 percent.

Moreover, inflation for fruit inched up to 0.1 percent, from an annual drop of -0.6 percent in the previous month. Furthermore, the annual decline of -0.4 percent in rice index during the month was slower relative to its previous month’s annual decrease of -1.0 percent.

Meanwhile, milk, cheese and egg index retained its previous month’s annual growth of 0.6 percent.

Source: PSA

BSP to keep rates low as long as inflation stays stable

The Central Bank will keep its policy stance supportive of the economy as long as inflation remains stable, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said.

“The BSP will remain vigilant of the current inflation dynamics to ensure that the monetary policy stance will support economic recovery to the extent that the inflation outlook will allow,” Mr. Diokno said at a Thursday hearing to deliberate the 2022 budget of the Development Budget Coordination Committee at the House of Representatives.

“It will carefully scan the operating environment with a forward-looking perspective to move in a preemptive fashion to address any risks to our price stability mandate,” he added.

This, as he noted potential risks to prices due to a recovery in global demand for commodities.

“Potential further uptick on international commodity prices due to improving global demand amid lingering supply chain bottlenecks will pose upside risks to inflation,” Mr. Diokno said.

The Monetary Board kept benchmark interest rates at record lows at its Aug. 12 meeting, citing the need for an accommodative policy stance due to the risks posed by the reimposition of strict lockdown measures to the ongoing economic recovery.

At that meeting, the BSP hiked its inflation forecast for the year to 4.1% from 4% previously, above the 2-4% target. It also raised its estimates for 2022 and 2023 to 3.1% from 3% previously.

Inflation stood at 4% in July, marking the first time it fell within the government’s target range since December 2020.

However, year to date, inflation averaged at 4.4%, still above the goal.

The Monetary Board will have its next policy review on Sept. 23.

“The BSP reaffirms its commitment to sustaining monetary policy support until the recovery fully gets underway,” Mr. Diokno said.

“We will remain watchful of domestic and global developments and stand ready to adjust its policy setting as needed to ensure price and financial stability conducive to a sustainable economic recovery,” he added.

The central bank chief said advanced and emerging economies will see diverging recovery paths, which will likely be determined by vaccination efforts and the effectiveness of policy support.

Still, despite the downside risks caused by new coronavirus variants, Mr. Diokno said the increase in the country’s vaccination pace in the past weeks could boost the country’s recovery prospects.

“There is optimism over the macroeconomic prospects given the acceleration of vaccine inoculation in the country, continued policy support and improved global economic outlook. We must keep this momentum ongoing and keep our guard against emerging risks,” he said.

“Economic recovery is highly contingent on the pace of vaccination program and the expanding capacity of the country’s healthcare system to allow us to safely reopen the economy and resume economic activity,” Mr. Diokno added.

The Philippines has fully vaccinated 12.21% or 1.197 million of its population, based on data from the Johns Hopkins University. The government targets to inoculate 70 million Filipinos with their first dose by November.

Source: Bworldonline