January inflation surges to 2-year high

Expensive food, especially pork and vegetables, lifted headline inflation to a two-year high of 4.2 percent year-on-year in January, making it harder to enjoin more consumer spending 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 above the government’s target range of 2 to 4 percent—considered manageable inflation—for 2021.

Prices last month 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 as inflation for the bottom 30-percent income households climbed to 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 spikes in food and nonalcoholic 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, due to higher pork prices caused by the African swine fever scare.

The 21.2-percent year-on-year jump in vegetable prices in January also outpaced December’s 19.7 percent. Fruits were more expensive by 9 percent year-on-year last month, 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 last year, were only “transitory” as a result of tight pork supply, damaged agricultural produce after a string of strong typhoons late last year as well as lack of mass transportation amid a 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.

Stagflation?

Private economists had expected inflation breaching the target band this year, but not as early as January. They had warned this might 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, last week said GDP would likely post year-on-year growth only by the second quarter of 2021 amid a “slow start” during the current quarter, extending to five quarters an economic contraction since the first quarter of 2020.

Security Bank 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,” he said.

RCBC’s chief economist Michael Ricafort said inflation could remain at 4-percent levels in the coming months mainly due to base effects from last year’s rates.