2-year inflation high of 4.2 percent in January driven mainly by pork, veggie prices

MANILA, Philippines—High prices of food, especially pork and vegetables, pushed headline inflation upward to a two-year high of 4.2 percent year-on-year last January, making it tougher to convince consumers to spend more amid a prolonged recession.

Not only was the rate of increase in prices of basic commodities the highest since January 2019’s 4.4 percent, but it was also already above the government’s target range of 2 to 4 percent—considered manageable inflation—for 2021.

Prices last January further rose by a faster 0.9 percent from levels in December, when month-on-month inflation inched up 0.8 percent amid the Christmas holidays.

The impact of high prices was worse for poor households—inflation for the bottom 30-percent income households climbed 4.9 percent, also the most elevated in two years.

In a report, the Philippine Statistics Authority (PSA) said the surge in inflation among the poor was mainly due to faster price hikes in food and non-alcoholic beverages.

For nationwide inflation, National Statistician Dennis Mapa said meat inflation jumped to 17 percent year-on-year in January from 10 percent in December last year, no thanks to higher pork prices due to the African swine fever (ASF).

The 21.2-percent year-on-year hike in vegetable prices in January also outpaced December’s 19.7 percent. Fruits were more expensive by 9 percent year-on-year also last January, a bigger increase than the 6.3 percent in December.

Fish prices rose 3.7 percent last month.

Besides food, which accounted for almost three-fifths of the headline rate, restaurant and miscellaneous goods and services as well as transport costs contributed to the faster-than-expected January inflation.

Economic officials had said the upward price pressures, which started in October 2020, were only “transitory” as a result of tight pork supply, damaged agricultural produce after a string of strong typhoons and lack of mass transportation amid prolonged COVID-19 quarantine.

But Mapa said the PSA’s survey trends showed the elevated inflation environment could spill over to the coming months as price conditions remained the same.

Private economists had expected inflation breaching the target band this year, but not as early as January. They had warned this may prolong recovery from the pandemic-induced recession due to tempered consumer spending.

Asked if January’s inflation rate would result in stagflation, or a combination of high prices with a drop in gross domestic product (GDP), acting Socioeconomic Planning Secretary Karl Kendrick Chua replied in a text message: “Our [inflation] target is for the whole year, and recessions are defined as two consecutive quarters, so one-month data is not enough to make any conclusion.”

Chua, who heads the state planning agency National Economic and Development Authority (Neda), last week said GDP would likely post year-on-year growth only by the second quarter of 2021 amid a “slow start” in the current quarter, extending economic contraction since the first quarter of 2020 to five straight quarters.

ING Bank’s senior economist for the Philippines Nicholas Mapa called this episode a “slowflation,” while Security Bank Corp.’s chief economist Robert Dan Roces agreed that stagflation was “too early to call.”

“We have to see the other indicators for the period: unemployment and persistent cost-push inflation,” Roces said. The government plans to conduct the labor force survey on a monthly basis starting this year in order to monitor the anticipated return of jobs alongside gradually easing quarantine more frequently than the current quarterly data.

Rizal Commercial Banking Corp.’s chief economist Michael Ricafort said headline inflation “could remain at 4-percent levels” during the coming months mainly due to base effects from last year’s rates.

BDO Unibank Inc.’s chief market strategist Jonathan Ravelas said updated projections showed inflation breaching 5 percent year-on-year starting March, and further rising to 6 percent in September and October, before slowly easing by yearend, although still above 4 percent.

At an online seminar, former socioeconomic planning secretary Cielito Habito said the inflation rate would likely average 4-5 percent this year, hence a need to ramp up food importation.

“Right now, we are forced to open agriculture—in pork, because of the shortage due to the African swine fever. And this is no longer the time to oppose imports because the reason prices are skyrocketing is the sheer lack of domestic supply,” Habito said.

TSB