A vendor sells vegetables at the Quinta market in Quiapo, Manila, October 6. — PHILIPPINE STAR/EDD GUMBAN
By Keisha B. Ta-asan, reporter
INFLATION likely accelerated to over 7% in October amid rising food prices and mounting second-round effects, analysts said.
A BusinessWorld poll of 14 analysts conducted last week gave a median estimate of 7.2% for October’s consumer price index (CPI).
If this were realized, inflation in October would be faster than September’s 6.9% and last year’s 4%. It would also be the fastest pace in over 14 years, or since December 2008’s 7.8% at the height of the global financial crisis.
This would also be the seventh month in a row that inflation has breached the central bank’s 2-4% target range.
The Bangko Sentral ng Pilipinas (BSP) is expected to release its inflation forecast range for the month today (31 October). The Philippine Bureau of Statistics will release official inflation data on November 4th.
Analysts noted that food prices, particularly meat, fish and vegetables, continued to rise due to supply shortages caused by typhoons this month.
“For October inflation, I expect 7%, driven by food prices as the recent Typhoon Karding and current rainy conditions have led to some food supply shortages and food logistics challenges,” said Patrick M., Sun economist Life Investment Management and Trust Co., Ella said in an email.
Agricultural damage from Super Typhoon Karding (international name: Noru) reached 3.12 billion pesos, while damage from Tropical Depression Maymay and Typhoon Neneng reached 594.02 million pesos.
“Recent storm damage could have caused temporary increases in food and other agricultural commodity prices and headline inflation until supply chains normalize,” said Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp.
ING Bank NV Manila chief economist Nicholas Antonio T. Mapa said the subsequent food price hike likely pushed inflation above 7% in October.
“The adjustment in transport tariffs also started in October, while pump prices rose for two weeks after consecutive price reductions. We expect inflation to peak in November and then only gradually slow until 2023,” added Mr Mapa.
Traditional and modern jeepneys have recently increased minimum fares to 12p and 14p respectively. Ordinary passenger buses also increased the minimum fare to P13.
In October alone, oil companies raised pump prices for gasoline by 0.50 pesos per liter, diesel by 8 pesos per liter and kerosene by 4.25 pesos per liter, Energy Department data showed.
ANZ Research economist Debalika Sarkar said in an email that lower electricity tariffs may have brought some relief to consumers.
Manila Electric Co. cut the overall electricity price by P0.0737 per kilowatt-hour (kWh) to P9.8628 in October.
Also, the peso’s continued weakness may have fueled inflation by making imports more expensive, said Emmanuel J. Lopez, associate professor at the Colegio de San Juan de Letran Graduate School.
“In our view, the pace of inflation will continue as the impact of the second round of global commodities increases and the impact of the peso’s depreciation against the US dollar is likely to be felt in the near term,” said the Philippine National Bank economist Alvin Joseph A. Arogo also said.
The peso was trading around 58-59ps per dollar this month. It went back down to the P57 level when it closed at P57.97 on Friday.
In October alone, the peso is up 0.655p, or 1.13%, from its close of 58.625p on September 30th.
“Commodity prices also followed the upward trend in anticipation of the holiday season,” said Mitzie Irene P. Conchada, an economist at De La Salle University.
IS THE SUMMIT NEARBY?
China Banking Corp. chief economist Domini S. Velasquez said inflation could likely peak this month.
“Key risks include the government’s inability to address current and potential shortages and potential increases in electricity tariffs. Proposed increases in water tariffs next year could push average inflation in 2023 above GNP’s high-end target, after averaging 5.6% this year,” Ms Velasquez said.
Manila Water Co., Inc. has proposed a tariff increase of P20 per cubic meter from 2023 to 2027.
“Although it looks like inflation is nearing its peak, it is still a long way from returning to the official 2-4% target range,” said Ms. Sarkar of ANZ Research.
Given strong domestic demand and volatility in the foreign exchange market, Ms Sarkar said she expects the BSP to continue raising interest rates through the second quarter of 2023.
“Our key interest rate forecasts for year-end 2022 and 2023 are 4.75% and 5.25%, respectively,” she added.
The Monetary Board has hiked 225 basis points (bps) to 4.25% since May so far.
“BSP has made it clear that it wants to match the Fed point by point. Given our outlook for a 75bp rate hike by the Fed in November and a 50-75bp rate hike in December, expect BSP to hike rates to 5.5-5.75% by year-end,” Herr said Map of ING.
BSP Governor Felipe M. Medalla said last week the BSP may need to respond point-by-point to the Federal Reserve to tame inflation and slow the peso’s depreciation.
He said the Monetary Board could hike 75 basis points at its next rate setting meeting on Nov. 17 if the Federal Reserve delivers its fourth 75 basis point rate hike on Nov. 1-2.