EXPENSIVE food, particularly pork products, caused the country’s inflation rate to post a two-year high in January, the Philippine Statistics Authority (PSA) reported, but the Central Bank eased fears that it was teetering on stagflation.
On Friday, National Statistician Claire Dennis S. Mapa said inflation surged 4.2 percent in January, the highest since January 2019 when inflation averaged 4.4 percent.
It was also above the forecast of the Bangko Sentral ng Pilipinas (BSP) of 3.3 percent to 4.1 percent for the month; and higher than all 19 analyst estimates in a Bloomberg survey, which had a median of 3.5 percent.
While consumer price growth reached 4.2 percent in the first month, the Central Bank said it was only expected given its “prevailing assessment of a transitory uptick in inflation in the first half of 2021, largely reflecting ongoing supply-side pressures as well as positive base effect.”
BSP maintained its position that inflation will average at 2.0-4.0 percent this year amid government measures to address the rising prices of commodities.
PSA data put inflation at 3.5 percent in December 2020; and at 2.9 percent in January 2020.
“Ang pangunahing dahilan ng pag-angat ng inflation sa buwan ng Enero 2021 ay ang mas mabilis na pagtaas ng presyo ng food and non-alcoholic beverages [The primary reason for the increase in inflation in January 2021 is the faster increase in prices of food and non-alcoholic beverages],” the PSA’s Mapa said.
“Ito ay dahil sa pagtaas ng presyo ng karne, partikular ang baboy, na may mas mataas na inflation sa antas na 17.1 percent sa buwan ng Enero 2021, mula sa 10.0 percent inflation noong Disyembre 2020 [This is due to the increase in meat prices, particularly pork, which posted an inflation of 17.1 percent in the month of January 2021 from a 10-percent inflation (rate) in December 2020],” he added.
Inflation in Metro Manila or the National Capital Region (NCR) rose to 4.3 percent in January 2021, from 3.2 percent in December 2020. Inflation in the area in January 2020 was posted at 2.7 percent.
The 8.3-percent annual growth in food and non-alcoholic beverages index primarily pushed up the inflation in the area. Increases in the housing, water, electricity, gas, and other fuels index as well as double-digit annual hikes were also observed in the indices of alcoholic beverages and tobacco.
Outside NCR
Similar to the national trend and NCR, inflation in AONCR (areas outside NCR) went up further to 4.2 during the month, from 3.7 percent in December 2020. Inflation in the area in January 2020 stood at 3 percent.
This was mainly due to the 1.3 percentage points jump in the inflation of food and non-alcoholic beverages, registering at 5.8 percent during the month, from 4.5 percent in the previous month.
Meanwhile, inflation for the bottom 30-percent income households accelerated to 4.9 percent in January 2021—the highest recorded since January 2019, at 5.2 percent.
In December 2020, inflation for this income group of consumers was posted at 4.3 percent, and in January 2020, 2.3 percent.
The increase in inflation, PSA said, was due to higher annual increase in the index of the heavily weighted food and non-alcoholic beverages at 4.6 percent during the month. Its annual rate in December 2020 was noted at 3.6 percent.
BSP policy tested
The higher-than-expected inflation data in January is seen as a signal that space for easy monetary policy might be narrowing amid a shaky economic recovery. Stocks and the peso fell on news of the inflation data release.
Still, the BSP tamped down anxiety of stagflation—a situation combining a contracting economy, soaring prices and massive unemployment. The Philippines’s economic growth data was the second worst in the region last year.
The Central Bank said it will be factoring in the “price developments, particularly in global commodity markets, along with the Q4 2020 GDP outturn in its assessment of the monetary-policy stance in its meeting” on February 11.
Overnight reverse repurchase facility currently stands at 2 percent after a 200-basis-point cut in total last year.
Steady rate
As price pressures build, some analysts expect the Central Bank to keep its benchmark interest rate steady at 2 percent for the whole year.
“Monetary policy is unlikely to tighten in this part of the economic cycle” even as financial conditions “must remain supportive” for domestic demand, said Eugenia Victorino, head of Asia strategy at Skandinaviska Enskilda Banken AB in Singapore.
Inflation will likely remain elevated in the coming months, with base effects from last year’s muted price increases and persistent cost pressures pushing the headline number close to or above the 4-percent level, according to Nicholas Mapa, an economist at ING Groep NV in Manila.
In January, Governor Benjamin Diokno said there will be a “long pause” on the interest-rate front, with the current rate in place for another two quarters or more. With Bloomberg News
