Food, energy prices seen pushing September inflation past 5 percent

MANILA, Philippines—The average pace of price increases in the Philippine economy will likely rise further this month due to stubbornly high prices of food products—aggravated by recent weather disturbances—and rising energy costs.

This was the forecast made by ING Bank Manila senior economist Nicholas Mapa, who predicted that the inflation rate for September will breach 5 percent, after catching market watchers off guard with a 4.9-percent spike in August.

“Recent and approaching storm systems will undoubtedly figure into this month’s fruit and vegetable inflation numbers,” he said in a research note to the press. “Fish and meat prices will also likely remain elevated at a time that energy costs rise as crude oil has stayed close to $70 per barrel.”

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

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

“Despite this, the price pressures appear to be accelerating at the worst possible time with base effects unfavorable in September,” the ING Bank economist added.

Amid these developments, Mapa noted that the central bank continues to face a dilemma, being “caught between a rock and hard place” as monetary authorities attempt to navigate renewed cost-push price resurgence during an economic recession.

The central banks 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, he said.

Adding an angle of complication is the recent depreciation spell of the peso in the months leading to the eventual normalization of interest rates set to be implemented by the US Federal Reserve which, he said, “has added fuel to the inflationary fire.”

The central bank brushed off the unexpected spike in the inflation rate for August, saying the pace of price increases for basic goods and services will normalize soon.

Last week, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the latest outturn was consistent with the agency’s assessment that “inflation could settle close to the high end of the target range in the near term before decelerating back to within the target range by year end.”

“In 2022-2023, inflation will likely fall towards the midpoint of the target, supported by the continued and timely implementation of non-monetary measures and reforms to address directly supply-side pressures on key food items,” he said.

TSB