May inflation sizzles to its highest level in 3.5 years

A few stores in a supermarket in Makati City. — PHILIPPINE STAR/ RUSSELL PALMA

INFLATION ACCELERATED in May to its highest level in three and a half years, fueled by soaring food and transport prices, the statistics agency said on Tuesday.

Overall prices for consumer goods and services accelerated 5.4% year-on-year in May, faster than 4.9% in April and 4.1% a year ago, according to preliminary data from Philippine Statistics. . Authority (PSA) showed.

This corresponded to the median estimate in a Business world poll conducted last weekend. It also reached the midpoint of the 5-5.8% forecast range given by the Bangko Sentral ng Pilipinas (BSP) for the month.

Headline inflation rate in the Philippines

It was the second month in a row thatflation exceeded the central bank’s 2-4% target range.

The inflation print in May was the fastest pace in 42 months or since the 6.1% year-on-year growth recorded in November 2018.

“The path of inflation continues to be driven primarily by supply-side factors amid volatile global commodity prices. Supply chain disruptions could also contribute to inflationary pressures and thus justify closer monitoring to enable rapid intervention to stop the emergence of further second-round effects,” BSP Governor Benjamin E. Diokno said in a statement.

On a monthly basis, consumer prices increased by 0.4%. However, it increased by 0.5% on a seasonally adjusted monthly basis.

Inflation has averaged 4.1% a year so far this year, still below the central bank’s revised forecast of 4.6%.

At a Tuesday press briefing, National Statistician Claire Dennis S. Mapa said May’s inflation was driven by higher prices for food and non-alcoholic beverages, utilities and transportation.

Prices for high-weight food and non-alcoholic beverages jumped 4.9% year on year in May, fueled by the 15.2% rise in vegetables, tubers, etc. and 6.2% in Iffish and seafood.

“We saw (in April) that increased transport costs had a ripple effect on the food basket. This month we have seen that there is now a large effect,” Mr. Mapa said in Filipino, adding that they had not seen any supply issues.

Mr. Mapa also pointed out that the rice inflation was well managed. Rice inflation fell 0.3% in the National Capital Region (NCR) and rose 1.8% in regions outside the NCR.

Transportation costs also rose 14.6% in May as pump prices continued to climb amid global market volatility. Gasoline rose 47.2%, while diesel jumped 86.2%.

The ongoing war between Russia and Ukraine has pushed oil prices above $100 a barrel amid supply concerns. Russia is the world’s second largest supplier of crude oil. Since the beginning of the year, the prices of gasoline, diesel and kerosene have increased by 23.85 pesos, 30.30 pesos and 27.65 pesos per liter respectively, according to the energy department.

Housing, water, electricity, gas and other fuels rose 6.5% in May, down from 6.9% in April but more than 1.7% a year ago. The main contributors to this segment were electricity (17.6% in May versus 19.5% in April) and liquefied petroleum gas (33.7% versus 33.4%).

The food-only index posted a 5.2% increase in May, up from 4% the previous month and up 3.7% from a year ago.

During this time atflation experienced by poor households jumped 4.3% in May against 3.8% in April. However, it was below 4.5% in May last year.

“The balance of risks to the inflation outlook now tips to the upside for 2022 and 2023. Upside pressures emanate from the potential impact of higher oil prices, including on transport fares, as well as than the continued shortage of domestic pork and fish supply. Meanwhile, downside risks are mainly related to the potential impact of a weaker than expected global economic recovery,” Mr. Diokno from BSP.

Bank of the Philippines Chief Economist Emilio S. Neri, Jr. attributed the faster rate of inflation to higher food and transportation prices.

“Food and transport were the main contributors to the rise, which means a second round effThe effects of rising oil, corn, wheat and fertilizer prices are beginning to be felt.ffects should start in the coming months,” he said in an email interview.

The Department of Labor said a minimum wage increase from P30 to P110 will be implemented in 14 areas from this month.

“The strength of economic growth and demand indicators in the Philippines disproves that this episode of inflation is purely supply-side,” Neri said, noting the need to hike more aggressively to combat inflationary expectations.

The National Economic and Development Authority (NEDA) said the extension of an executive order that lowers tariff rates for imports of rice and pork, as well as tariff reductionsffs on maize will help facilitateflshareholder pressures. Executive Order (EO) No. 171 also temporarily removed the 7% customs duty on coal imports, with the aim of lowering electricity prices.

Diokno said the central bank will continue to review theflgrowth and growth prospects ahead of the June 23 political meeting.

“The pace and timing of any further monetary policy action by the BSP will be guided by the data results, consistent with the price of the BSP and Iffinancial stability objectives,” Mr. Diokno said.

The Monetary Board raised the benchmark interest rates for the Iffirst time since 2018 by 25 basis points (bps) on May 19 to stifle the rise inflshareholder pressures.

“[The central bank] may have to raise (rates) further to avoid a further weakening of the peso which, in turn, will lead toflation to accelerate further,” Mr. Neri said.

ING Bank NV Manila’s chief economist, Nicholas Antonio T. Mapa, said he expects BSP to continue to rise in future meetings “to get a head start.”

He said inflation would likely be high for the rest of the year, peaking at 6.8% in the fourth quarter and averaging 4.8% for the year.

“Given this outlook, a 25 basis point hike is fully expected, while a more vigorous 50 basis point hike may actually be needed to get ahead of the curve,” Mapa said.

Mr. Neri’s projects inflation to settle above 4.5% this year, “all the more so if the conflICT in Eastern Europe persists.

In a note sent to reporters, Rizal Commercial Banking Corp. chief economist Michael L. Ricafort said another quarter-percentage-point hike would help temper rising inflation expectations and prevent inflation from skyrocketing. — MIUC

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