Higher March inflation seen slowing PH recovery

High oil prices likely quickened inflation in March and could slow down the Philippines’ economic recovery momentum.

All 24 March inflation forecasts collected by the Inquirer on Friday were above the 3 percent recorded in February. The government’s consumer price index (CPI) report for last month will be out on Tuesday.

While the majority of the forecasts remained within the Bangko Sentral ng Pilipinas’ (BSP) 2 to 4 percent target range of manageable price hikes, five economists said a breach as early as March—before the expected inflation surge this quarter—may not be far-fetched.

GDP growth

Rizal Commercial Banking Corp.’s Michael Ricafort had the highest March inflation projection of 4.4 percent year-on-year, followed by the 4.3-percent forecast of Ateneo de Manila University’s Ser Percival Peña-Reyes.

ANZ’s Sanjay Mathur estimated 4.2 percent, while both Capital Economics’ Alex Holmes and Nomura’s Euben Paracuelles projected 4.1 percent.

Asked if high oil prices would already affect first-quarter gross domestic product (GDP) growth, Mathur said: “The second quarter should see an impact by way of reduced purchasing power of households.”

Last month’s headline inflation at 4 percent—the top end of the target band—was forecasted by Goldman Sachs Economics Research, ING’s Nicholas Antonio Mapa, Moody’s Analytics’ Sonia Zhu, Sun Life Financial’s Patrick Ella, and University of Asia and the Pacific’s Victor Abola. “We should expect a slightly lower GDP growth than the government expects because of the impact of rising inflation on consumption spending,” Abola said, referring to the 7-9 percent economic expansion goal for 2022.

For Zhu, “the first and second quarters of [GDP] growth will be dented by the elevated price level.”

Both Bank of the Philippine Islands’ Emilio Neri Jr. and China Bank’s Domini Velasquez projected 3.9 percent; meanwhile, Oxford Economics’ Makoto Tsuchiya, Philippine National Bank’s Alvin Joseph Arogo, Regina Capital’s Luis Limlingan, and Security Bank’s Robert Dan Roces shared the same forecast of 3.8 percent.

“The higher inflation in March is mainly driven by the continuous increase in fuel prices and higher electricity rates. Although March inflation is expected to be within-target still, we estimate that inflation in the next three months will likely breach the BSP’s target due to base effects and elevated global commodity prices,” Velasquez said.

HSBC Global Research forecasted 3.7 percent; 3.6 percent for Barclays’ Shreya Sodhani, BDO Unibank’s Jonathan Ravelas, United Overseas Bank’s Loke Siew Ting, and University of the Philippines-Los Baños’ Agham Cuevas; and 3.5 percent for DBS’ Han Teng Chua and UnionBank of the Philippines’ Ruben Carlo Asuncion.

Cuevas said expensive fuel “may also have dampened consumption and consequently first-quarter economic growth compared to what was previously projected, but the more significant impact would be for annual growth if these oil price hikes continue to persist.”

“We think the impact of oil prices in February to March, combined with the higher alert level in the Philippines in January due to Omicron will have a dampening effect on private consumption and thereby growth. Still, these will only delay the recovery but not derail it,” Sodhani, for her part, said.

Pantheon Macroeconomics’ Miguel Chanco had the lowest March inflation forecast in the Inquirer’s poll, at 3.3 percent.

“The data on household spending in the first quarter, so far, has been fairly solid, and I doubt that the surge in global oil prices from late February will have much of a bearing on first-quarter consumption. As things stand, the inflationary pinch looks set to be at its most acute in the second quarter,” Chanco said.