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Inflation surges to near 14 year-high in October

Marketgoers purchase fresh vegetables at the Marikina Public Market, Oct. 10. Inflation accelerated to its quickest pace in almost 14 years in October, according to the statistics agency. — Photos by Walter Bollozos/The Philippine STAR)

By Keisha B. Ta-asan, Reporter

Annual inflation quickened to its fastest pace in almost 14 years in October, as food prices soared due to the impact of recent typhoons, the Philippine Statistics Authority (PSA) said.

Preliminary PSA data showed headline inflation accelerated to 7.7% in October, from 6.9% in September and 4% in October 2021.

The latest inflation print was the fastest in nearly 14 years or since the 7.8% seen in December 2008 during the global financial crisis.

It also exceeded the median estimate of 7.2% in a BusinessWorld poll.

October marked the seventh straight month that inflation breached the Bangko Sentral ng Pilipinas’ (BSP) 2-4% target band this year.

“The October 2022 inflation outturn of 7.7% is within the BSP’s forecast range of 7.1% to 7.9%, consistent with the BSP’s assessment of inflation remaining above target over the near term as price pressures broaden and signs of further adverse second-round effects emerge,” the central bank said in a statement.

Month on month, the consumer price index (CPI) inched up by 0.9%. Stripping out the seasonality effects on prices, inflation rose by 1% month on month.

For the 10-month period, inflation averaged 5.4% versus the 4% a year ago. However, this is still lower than the BSP’s 5.6% full-year forecast.

Core inflation, which excludes food and fuel volatile prices, quickened to 5.9% in October from the revised 5% in September.

At a press briefing, National Statistician Claire Dennis S. Mapa said October inflation grew faster as higher prices of food and non-alcoholic beverages reflected the agriculture damage caused recent typhoons.

The heavily weighted index for food and non-alcoholic beverages, which account for nearly 38% of the theoretical consumer basket, rose to 9.4% year on year in October from 7.4% in September. The food-alone index likewise grew to 9.8% in October.

“In the National Capital Region (NCR), vegetable prices were higher. This is really the effect of Typhoon Karding. We also factored in higher transport fares and of course, higher commodities in housing, water, electricity, gas, and other fuels,” Mr. Mapa said in a mix of English and Tagalog.

Agricultural damage due to last month’s Super Typhoon Karding (international name: Noru) reached P3.12 billion, while damage due to Tropical Depression Maymay and Typhoon Neneng stood at P594.02 million.

Mr. Mapa said the impact of Typhoon Paeng, which hit the country over the weekend, would be considered in November’s headline inflation.

Commodities that also contributed to the faster headline inflation in October were housing, water, electricity, gas and other fuels (7.4% annually from 7.3% in September); and restaurants and accommodation services (5.7% from 4.6%).

Out of 13 commodities, nine reported faster inflation in October.

Inflation in the NCR jumped to 7.7% in October, from 6.5% in September, while inflation in areas outside Metro Manila rose to 7.6% from 7% in the prior month.

Of the 17 regions in the country, seven recorded quicker inflation in October than the national average of 7.7%. It was led by Davao Region (9.8% in October from 9.6% in September), Zamboanga Peninsula (9% from 9.6%) and MIMAROPA (8.5% from 7.6%).

Meanwhile, October inflation rate for the bottom 30% income households climbed to 7.3% from 6.7% in September and 4.8% last year. The 10-month average stood at 4.8%. This segment still uses the consumer price index under 2012 prices compared with the rebased 2018 prices for the national inflation rate.

Given higher inflation and the extensive damage to property, lives, and livelihood, the National Economic and Development Authority (NEDA) said it is important to immediately provide assistance to those affected by recent typhoons.

“Our immediate priority is to continue supporting the most vulnerable sectors of the economy; hence, the cash transfers and fuel discounts will continue,” Socioeconomic Planning Secretary and NEDA Director-General Arsenio M. Balisacan said in a statement.

“This will alleviate the effects of the sustained increase in commodity prices as a result of global headwinds as well as the recent typhoons which damaged our domestic production and disrupted food supply,” Mr. Balisacan said.

He noted the government should boost support for the agriculture sector through preemptive measures, adding that climate-adaptive agricultural technologies should be utilized and value chains should be strengthened to sustain productivity and resilience.

Higher inflation in October was due to supply constraints with additional pressure from oil prices, Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr said.

“Demand for food is expanding due to the country’s growing population, and production can’t keep up. Aside from the recent typhoons, long term structural problems in the agriculture sector have contributed to this deficit,” Mr. Neri said.

Security Bank Corp. Chief Economist Robert Dan J. Roces said domestic demand remained resilient in the third quarter of the year.

“Indicators suggest domestic demand remained resilient in 3Q with PMI (purchasing managers’ index) and mobility up, while unemployment tempered to pre-pandemic levels, supported by reopening and higher wages, and this will sustain upward pressure on core prices,” he said.

The S&P Global Philippines Manufacturing PMI stood at 52.6 in October, lower than 52.9 in September. A PMI reading above 50 denotes better operating conditions compared to the previous month, while a reading below 50 signals otherwise.

University of Asia and the Pacific Senior Economist Cid L. Terosa said the depreciation of the peso added to inflationary pressures as businesses saw higher production costs for import-dependent goods.

“To safeguard their profit margins, many in the services sector had to raise prices as well. It is not surprising that the confluence of all these increases in price was reflected in higher retail prices,” Mr. Terosa said.

Mr. Terosa said inflation may decelerate ahead of the holiday season “as long as prices of petroleum products remain relatively stable, peso depreciation becomes settled, and natural disasters don’t materialize.”

The peso went back to the P57 level when it closed at P57.97 on Oct. 28. This has caused the peso to strengthen by P0.655 or 1.13% from its Sept. 30 close of P58.625.

The purchasing power of the peso in the country is equivalent to 85 centavos in October, according to Mr. Mapa. From January to October 2022 versus the 2018 base year, the purchasing power of the local unit averaged 87 centavos.

‘YET TO PEAK’

According to PSA’s Mr. Mapa, inflation may have not yet peaked in October as food prices and recent typhoon damage may continue to fuel inflation this month.

“There’s a substantial probability of an increase. In other words, it’s not certain that this is already the peak primarily because we will be experiencing upward movement from the data on food prices. The team noted we had an increase in LPG recently, so that would factor in,” he said.

However, BSP Governor Felipe M. Medalla said inflation will peak before the end of the year.

“It will peak before the end of this year. Of course, anything can happen but our best guest that it will peak either this month or the last month of the year,” Mr. Medalla said in an interview with Bloomberg TV.

For 2023, the BSP projects inflation to average 4.1% before easing to 3% in 2024.

In its statement, the central bank said inflation will likely slowdown next year due to easing global oil prices, negative base effects from transport fare hikes, and the impact of BSP’s policy rate adjustments in the country.

“The risks to the inflation outlook appear to be tilted to the upside for 2022 and 2023 but are seen to be broadly balanced for 2024. The potential impact of higher global non-oil prices, additional transport fare hikes, increased food prices owing to weather disturbances, and sharp rise in sugar prices are the major upside risks to the inflation outlook,” the BSP said.

“Meanwhile, the impact of a weaker-than-expected global economic recovery is the primary downside risk to the outlook,” it added.

RATE HIKES?

The latest inflation print bolsters the case for more rate hikes by the central bank.

““The BSP remains prepared to take all further monetary policy actions necessary to bring inflation back to the target over the medium term,” the central bank said on Friday.

Mr. Medalla on Thursday said the BSP will raise rates by 75 basis points (bps) at its Nov. 17 meeting, matching the US Federal Reserve’s latest move.

In a note on Friday, ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said supply and demand side pressures may push headline inflation closer to 8% by December before easing in the first half next year.

“BSP will likely remain hawkish even after their recent pre-announced 75 bp rate increase. We expect the central bank to hike again in December, likely matching any move from the Fed to close out the year,” ING’s Mr. Mapa said.

For BPI’s Mr. Neri, the Philippine central bank will continue to hike interest rates given the outlook for inflation amid a widening current account deficit and the US Fed’s aggressive monetary tightening.

“Assuming that 5% is the Fed’s terminal rate, the risk of BSP’s policy rate rising beyond 6% in the next 12 months has become more elevated,” Mr. Neri said.

He added that the peso may continue to depreciate in the coming months as the Fed is expected to continue its aggressive pace this year and through next year.

The Fed has so far increased rates by 375 bps from near-zero in March to within 3.75-4%, which was described as the fastest monetary tightening since the early 1980s.

Since May, the BSP has raised rates by 225 bps, bringing the overnight reverse repurchase facility rate to 4.25%.

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