By Katherine K. Chan, A reporter
SHARP OIL PRICE is rising due to supply disruptions from the Middle East war, and high-cost rice, is likely to push inflation in the Philippines to the fastest pace in nearly two years, analysts said.
A BusinessWorld A poll of 18 analysts gave an average estimate of 3.8% for the consumer price index in March, accelerating from 2.4% in February and 1.8% last year.
This is close to the upper end of the Bangko Sentral ng Pilipinas’ (BSP) forecast of 3.1%-3.9% for the month.
If realized, the headline printing will be the fastest in 20 months or from 4.4% seen in July 2024.
This will also mark the third month in a row that inflation has reached the central bank’s target.
The Philippine Statistics Authority (PSA) will release inflation data for March on Tuesday, April 7.
“I’m looking at a 3.8% inflation print for March, with a sharp increase from 2.4% in February from transport price cuts that will come soon after the fuel price hike seen in recent weeks,” said Miguel Chanco, chief economist for Emerging Asia at Pantheon Macroeconomics, in an email.
He said the inflation rate in transportation is likely to increase to 8.5% last month from 0.3% in February.
“In addition to this, we expect a further increase in food inflation when the low results are still very high,” said Mr. Chanco.
In March, domestic retailers raised pump prices by double digits as the US-Iran war sent crude prices soaring. Pump price adjustment stood at a high of P43.50 per liter of gasoline, P67.35 per liter of diesel and P70.90 per liter of kerosene last month.
The Philippines is an exporter of crude oil and receives crude oil and liquefied petroleum gas supplies from the Middle East. This makes the country very vulnerable to fluctuations in global crude prices.
Analysts also attributed the rapid headline clip to higher rice prices and electricity rates during the month.
“Furthermore, the high prices of rice and electricity, coupled with the continued devaluation of the peso, are likely to increase inflationary pressures in other countries, especially fuel, food, and other essential goods,” Maybank Investment Bank economist Azril Rosli said in an email.
“Some offset may come from lower prices of vegetables, fish, and meat, but the general price depression seems to be dominated by the increase in costs led by electricity and the secondary effects on services and utilities,” he added.
Based on PSA data, the average cost of local milled common rice increased by 5.8% to P48.69 per kilo in the second half of the month from P46.02 last year. The price of finely milled rice increased by 8.02% year-on-year to P56.68 per kilo, while the price of special rice increased by 3.79% year-on-year to P64.07 per kilo.
Manila Electric Co. increased electricity rates by 64.27 centavos per kilowatt-hour (kWh) to P13.8161 kWh for its customers in the greater Metro Manila area. This means that households that use 200 kWh per month pay about P129 more on their electricity bill in March.
INTENDED SUFFERING?
Meanwhile, several analysts see inflation likely to breach the BSP’s target in March, as primary effects and higher prices of rice and other staples add to the inflationary impact of the oil shock.
“We forecast inflation in March at 4.2% year-on-year, from 2.4% in February, mainly reflecting negative effects and high food prices, especially rice and other essential items, amid tight domestic supply conditions and cost pressures related to imports,” said Chief Economist of the Union Bank of the Philippines Ruben Carlo OOO
“Transportation and utility costs are likely to be impacted following recent movements in global oil prices, while core inflation remains stable for now,” he added.
Emerging supply-side pressures could also create second-round price effects on transportation costs, energy prices and wage-related changes, Mr. Asuncion commented.
The BSP wants to keep inflation within the range of 2%-4%, with 3% as the target point.
However, the central bank now expects that the headline will pass the belt amid price pressure from higher oil prices and the effects of second-round inflation.
If i BusinessWorld The survey’s median forecast showed, core inflation would have been 2.7% as of March, still below the BSP’s revised inflation rate of 5.1% for the year.
Meanwhile, the head of Security Bank Economist, Angelo B. Taningco, projected that inflation will increase to 4.4% in March, citing the depreciation of the peso as one of the drivers.
The peso hit back-to-back record lows last month as uncertainty over the Middle East war weighed on the local currency.
On Tuesday, the peso closed at a low of P60.748 against the dollar, down 5.8 centavos from its previous record close of P60.69 on Monday, data from the Bankers Association of the Philippines said.
STOP OR WALK?
However, many analysts voted for BusinessWorld Said the current macroeconomic background calls to pause at the upcoming BSP meeting later this month.
“Taking would risk exacerbating inflationary expectations, while aggressive tightening would weaken growth without addressing the cause of the shock,” Moody’s Associate Director of Analytics and Economist Sarah Tan said in an email.
“In this context, we expect the BSP to use a wait-and-see approach, to assess whether the increase in oil prices proves to be temporary or permanent. At the moment, a temporary suspension seems to be the most realistic option, and we expect the BSP to hold fire at the April meeting,” he added.
However, Mr. Security Bank’s Taningco sees the BSP strengthening its hand in reducing inflationary pressure.
“We still expect the BSP to raise the policy rate by 25 basis points (bps) to 4.5% at its April 23 meeting,” he said via email. “This is mainly due to inflation in March that was more than 4% higher than the BSP’s target range.”
On March 26, the central bank kept the key rate at 4.25% in an inactive meeting as it sought to calm markets amid uncertainty from the Middle East war.
The BSP last cut its benchmark rate by 25 bps at the sixth consecutive meeting in February, extending its easing cycle to a year and a half. It has cut a total of 225 bps from August 2024.
BSP Governor Eli M. Remolona, Jr. he said they opted for stability as policy adjustments would have little impact on managing supplier-driven inflationary pressures, adding that tightening could delay economic recovery.
However, the central bank official said the Monetary Board will monitor the price results of the second round to guide their future policy decisions, with a rate increase if the price of crude oil reaches $200 per barrel.
The Monetary Board will hold its second policy review this year on 23 April.
