Sept inflation seen accelerating to 5-5.2%

Expensive food due to bad weather-induced supply constraints plus high oil prices likely pushed headline inflation to at least 5 percent in September, the majority of economists polled by the Inquirer last week said.

Out of 17 economists, 13 projected the rate of increase in prices of basic commodities to hit between 5 percent and 5.2 percent —a level unseen since skyrocketing rice prices jacked up the inflation rate in 2018. The government’s September inflation report will be out on Tuesday.

Barclays’ Shreya Sodhani and Pantheon Macroeconomics’ Miguel Chanco both had the highest forecast of 5.2 percent year-on-year. For Sodhani, “we do not expect inflation to be a risk to economic recovery now as the price pressures are mostly supply-driven and should subside by end of the year,” echoing the Bangko Sentral ng Pilipinas’ (BSP) view that the current above-target inflation environment was only “transitory.”

BDO Unibank’s Jonathan Ravelas, Bank of the Philippine Islands’ Emilio Neri Jr., HSBC Global Research, Security Bank’s Robert Dan Roces and UnionBank of the Philippines’ Ruben Carlo Asuncion forecasted 5.1 percent.

Economic slump

Ateneo de Manila University’s Ser Percival Peña-Reyes, ING’s Nicholas Antonio Mapa, Moody’s Analytics’ Steven Cochrane, Philippine National Bank’s Alvin Joseph Arogo, Rizal Commercial Banking Corp.’s Michael Ricafort and Sun Life Financial’s Patrick Ella shared the same 5-percent forecast.

For some economists, recovery from the pandemic-induced economic slump was already taking a hit from elevated inflation. “Consumers are forced to tighten their belts further,” Neri noted.

Risk to growth

“Inflation is always a risk to economic growth, but the risk today in the economy is the slow recovery in consumption, and obviously rising inflation complicates this, but if it’s persistent. I don’t think inflation is persistent today; it’s temporary,” Ella said.

On the flip side, Asuncion said that “high inflation seems to have a positive impact on tax revenues, which the government badly needs especially during this time.”

Four economists had forecasts below 5 percent: Citi’s Nalin Chutchotitham, Oxford Economics’ Makoto Tsuchiya, and Standard Chartered’s Jonathan Koh projected 4.9 percent; while the lowest estimate was that of Capital Economics’ Gareth Leather at 4.8 percent.

“Persistently high inflation is a risk to the Philippines economy as it is reducing households’ disposable income, leaving them with less to spend on other things. Moreover, there is a risk that inflation proves sticky with businesses passing on higher input costs to consumers. However, this is not our base case given still soft demand,” Tsuchiya said.

In an Oct. 1 report, Goldman Sachs Economics Research said that core inflation—price hikes of consumer goods and services excluding volatile items like food and energy—could rise by 90 basis points in the Philippines next year alongside increases across Asean on expectations of further reopening of the region’s economies by the first half of 2022. INQ