Market goers buy fresh vegetables at the Marikina Public Market on October 10. Inflation accelerated to its maximum
pace in nearly 14 years in October, according to the Bureau of Statistics. — Photos by Walter Bollozos/The Philippine STAR)
By Keisha B. Ta-asan, reporter
Annual inflation accelerated to its highest pace in nearly 14 years in October as food prices soared due to the impact of recent typhoons, the Philippines’ Statistics Agency (PSA) said.
Preliminary PSA data showed that headline inflation accelerated to 7.7% in October, from 6.9% in September and 4% in October 2021.
The latest inflationary pressures were the fastest in almost 14 years, or since December 2008’s 7.8% rise during the global financial crisis.
It also beat the median estimate of 7.2% in a BusinessWorld survey.
October marked the seventh consecutive month that inflation broke Bangkok Sentral ng Pilipinas (BSP)’s 2-4% target range this year.
“October 2022 inflation outcome of 7.7% is within BSP’s forecast range of 7.1% to 7.9%, consistent with BSP’s view that inflation will remain above target in the short term as the price pressures are expanding and signs of more adverse second-round effects are emerging,” the central bank said in a statement.
Month on month, the consumer price index (CPI) increased by 0.9%. Excluding seasonal effects on prices, inflation rose 1% month-on-month.
For the 10-month period, inflation averaged 5.4% versus 4% a year ago. However, this is still lower than GNP’s full-year forecast of 5.6%.
Core inflation, which excludes volatile food and fuel prices, accelerated to 5.9% in October from September’s revised 5%.
Speaking at a news conference, national statistician Claire Dennis S. Mapa said inflation rose faster in October as higher food and soft drink prices reflected the damage to agriculture caused by recent typhoons.
The heavily weighted food and non-alcoholic beverages index, which accounts for nearly 38% of the theoretical consumer basket, rose to 9.4% year-on-year in October from 7.4% in September. The Food Alone Index also rose to 9.8% in October.
“Vegetable prices were higher in the National Capital Region (NCR). This is really the effect of Typhoon Karding. We also factored in higher transport costs and of course higher consumables in terms of housing, water, electricity, gas and other fuels,” Mr Mapa said in a mixture of English and Tagalog.
Agricultural damage from Super Typhoon Karding (international name: Noru) last month reached 3.12 billion pesos, while damage from Tropical Depression Maymay and Typhoon Neneng totaled 594.02 million pesos.
Mr Mapa said the impact of Typhoon Paeng, which slammed the country over the weekend, would be factored into November’s headline inflation.
Commodities also contributing to faster headline inflation in October were housing, water, electricity, gas and other fuels (7.4% annually versus 7.3% in September); and restaurants and lodging establishments (5.7% from 4.6%).
Nine out of 13 commodities reported faster inflation in October.
Inflation in NCR rose to 7.7% in October from 6.5% in September, while inflation in areas outside Metro Manila rose to 7.6% from 7% in the previous month.
Of the country’s 17 regions, seven recorded faster inflation in October than the national average of 7.7%. It was led by Davao Region (9.8% in October vs. 9.6% in September), Zamboanga Peninsula (9% vs. 9.6%) and MIMAROPA (8.5% vs. 7.6%).
Meanwhile, the October inflation rate for households in the bottom 30% rose to 7.3% from 6.7% in September and 4.8% last year. The 10-month average was 4.8%. This segment continues to use the consumer price index at 2012 prices compared to the rebased 2018 prices for the national inflation rate.
With higher inflation and extensive damage to property, lives and livelihoods, the National Economic and Development Agency (NEDA) said it was important to provide immediate assistance to those affected by the recent typhoons.
“Our immediate priority is to continue supporting the most vulnerable sectors of the economy; Therefore, cash transfers and fuel rebates will continue,” Secretary for Socio-Economic Planning and NEDA Director-General Arsenio M. Balisacan said in a statement.
“This will alleviate the impact of the continued surge in commodity prices as a result of global headwinds as well as recent typhoons that have damaged our domestic manufacturing and disrupted food supplies,” Mr. Balisacan said.
Noting that the government should increase support to the agricultural sector through preventive measures, he added that climate-adaptive agricultural technologies should be deployed and value chains strengthened to maintain productivity and resilience.
Higher inflation in October was due to supply constraints with added pressure from oil prices, said Emilio S. Neri, Jr., chief economist at the Bank of the Philippine Islands.
“Demand for food is growing due to the country’s growing population, and production cannot keep up. Aside from the recent typhoons, long-term structural problems in the agricultural sector have contributed to this deficit,” Mr Neri said.
Robert Dan J. Roces, chief economist at Security Bank Corp., said domestic demand remained resilient in the third quarter of the year.
“Indicators suggest that domestic demand remained resilient in Q3, with PMI (Purchasing Managers’ Index) and mobility rising, while unemployment fell to pre-pandemic levels, supported by reopening and higher wages, and this will provide upward pressure keep core prices up,” he said.
The S&P Global Philippines Manufacturing PMI was 52.6 in October, down from 52.9 in September. A PMI reading above 50 means better operating conditions compared to the previous month, while a reading below 50 signals something else.
Cid L. Terosa, a senior economist at the University of Asia and the Pacific, said the peso’s depreciation added to inflationary pressures as companies saw higher production costs for import-dependent goods.
“To protect their profit margins, many in the service sector have also had to raise prices. It’s not surprising that the confluence of all these price increases translated into higher retail prices,” said Mr. Terosa.
Mr. Terosa said inflation could slow ahead of the holiday season “as long as petroleum product prices remain relatively stable, peso devaluation is managed and natural disasters do not occur.”
The peso returned to the P57 level when it closed at 57.97P on October 28th. This has caused the peso to rise 0.655p, or 1.13%, from its close of 58.625p on Sept. 30.
According to Mr. Mapa, the purchasing power of the peso in the country is equivalent to 85 centavos in October. From January to October 2022 compared to the base year 2018, the purchasing power of the local unit averaged 87 centavos.
‘YET TO THE HIGHEST’
According to PSA’s Mr Mapa, inflation may not have peaked in October as food prices and recent typhoon damage could fuel inflation further this month.
“There is a significant possibility of an increase. In other words, it’s not sure if this is the peak yet, especially as we are set to see some bullishness through the food price data. The team noted that we had a recent spike in LPG levels, so that would be accounted for,” he said.
However, GNP Gov. Felipe M. Medalla said inflation will peak before the end of the year.
“The peak will be reached this year. Of course, anything can happen except for our best guest that it will peak either this month or the last month of the year,” Mr Medalla said in an interview with Bloomberg TV.
For 2023, GNP forecasts inflation to average 4.1% before falling to 3% in 2024.
In its statement, the central bank said inflation is likely to slow next year due to falling global oil prices, negative base effects from fare increases and the impact of GNP interest rate adjustments in the country.
“Risks to the inflation outlook appear to be tilted to the upside for 2022 and 2023, but are viewed as broadly balanced for 2024. The potential impact of higher global non-oil prices, additional fare hikes, weather-related food price disruptions and a sharp rise in sugar prices are the main upside risks to the inflation outlook,” the BSP said.
“Meanwhile, the primary downside risk to the outlook is the impact of a weaker-than-expected global economic recovery,” she added.
Recent inflationary pressures strengthen the case for further interest rate hikes by the central bank.
“The BSP remains poised to take any further monetary policy action needed to bring inflation back on target in the medium term,” the central bank said on Friday.
Mr Medalla on Thursday said the BSP would hike rates by 75 basis points (bps) at its Nov. 17 meeting, in line with the Federal Reserve’s latest move.
In a note on Friday, Nicholas Antonio T. Mapa, senior economist at ING Bank NV Manila, said supply and demand side pressures could push headline inflation closer to 8% by December before easing in the first half of next year .
“BSP is likely to remain hawkish even after their recently announced 75 basis point rate hike. We expect the central bank to hike again in December, which is likely to coincide with any Fed move on the year-end,” said ING’s Mr Mapa.
For BPI’s Neri, the Philippine central bank will continue to hike interest rates amid a widening current account deficit and the US Federal Reserve’s aggressive monetary tightening amid inflationary prospects.
“Assuming 5% is the final Fed interest rate, the risk of the GNP interest rate going above 6% in the next 12 months has increased,” Mr Neri said.
He added that the peso could continue to fall in value in the coming months as the Fed is expected to continue its aggressive pace this year and next.
The Fed has hiked rates 375 basis points so far from near zero in March to between 3.75% and 4% in what has been described as the fastest monetary tightening since the early 1980s.
Since May, the BSP has hiked rates by 225 basis points, taking the reverse repo rate overnight to 4.25%.