Inflation cooled to 22-month low in Dec, thanks to cheaper veggies

Inflation softened to its lowest level in 22 months in December on the back of a milder uptick in utility costs and cheaper vegetables, but a spike in rice prices continued to create unease for policymakers.

Inflation, as measured by the increase in consumer price index, eased to 3.9 percent year-on-year in the final month of 2023, from 4.1 percent in November, the Philippine Statistics Authority (PSA) reported on Friday.

It was the lowest print since the 3 percent recorded in February 2022, and the first time since March 2022 that inflation settled within the 2 to 4 percent target range of the Bangko Sentral ng Pilipinas (BSP).

The latest reading also fell within the BSP’s 3.6 to 4.4 percent forecast range for December and marked the third straight month of slower price growth.

Dissecting the PSA’s report, inflation for housing, water, electricity and gas slowed to 1.5 percent in December, from 2.5 percent in the previous month. That decline was responsible for 59.6 percent of the downtrend in the headline rate last month, National Statistician Claire Dennis Mapa said in a press conference.

Another major contributor to the softer price growth in December was the milder food inflation, which cooled to 5.4 percent from 5.7 percent in November. Data showed a big drop in prices of vegetables (-9.2 percent), as well as a slower increase in the price of meat (0.2 percent) and coffee (3.6 percent).

High rates to remain

Despite the more manageable inflation last month, the BSP said it deems it necessary to “keep monetary policy settings sufficiently tight until a sustained downtrend in inflation becomes evident.”

While the monthly inflation figure returned to a level within the BSP’s goal, the 2023 average of 6 percent marked the second straight year that the inflation-targeting central bank had missed its target. At the same time, rice price inflation accelerated for the second consecutive month in December to 19.6 percent, the briskest pace since March 2009.

Amid the threat of a prolonged El Niño dry spell that may jack up food prices and power costs, Secretary Arsenio Balisacan of the National Economic and Development Authority said the government may further cut tariffs on important food items “if necessary”.

More manageable

“While our medium-term objective to boost agricultural productivity remains, it is important to augment domestic supply to ease inflationary pressures on consumers,” Balisacan said.

For Aris Dacanay, economist at HSBC Global Research, the extension of low tariff rates on key food items and an elevated year-end buffer stock in rice would make inflation “more manageable” in 2024.

“The BSP’s tight monetary stance will also continue to stem any price pressures coming from core items such as rent and housing,” Dacanay said in an emailed commentary.