Inflation spikes to 6-month high of 2.7% in July

MANILA, Philippines — Consumer prices grew at a faster pace in July, triggered mainly by higher transportation costs, the Philippine Statistics Authority (PSA) reported yesterday.

The headline inflation rate accelerated to a six-month high of 2.7 percent in July from 2.5 percent in June and 2.4 percent in July 2019.

This brings the seven-month average this year to 2.5 percent, still within the government’s target of between two and four percent.

Economists, however, said the rise in prices remained well-behaved and would likely be a non-issue for monetary regulators in the coming months.

Nicholas Mapa, senior economist at ING Bank Manila, said the central bank’s Monetary Board is likely to maintain the benchmark interest rate at an all-time low of 2.25 percent as inflation remained below the mid-point of the two to four percent target.

He said the benign inflation environment is a reflection of a stalling domestic activity as economic growth is fueled by consumption that is clearly absent amid the pandemic.

For his part, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the Monetary Board would consider the latest inflation outlook along with the release of the gross domestic product (GDP) figure for the second quarter at the upcoming monetary policy meeting on Aug. 20.

“The latest inflation outturn is consistent with the BSP’s prevailing assessment that inflation is expected to remain benign over the policy horizon due largely to the   potential adverse impact of COVID-19 on domestic and global economic prospects,” Diokno told reporters via Viber.

“For the rest of the year, output is expected to decline at a slower pace as firms and households gradually adjust to post-pandemic conditions. GDP growth is expected to recover in 2021 as government policy support measures fully gain traction,” Diokno said.

Among commodity groups, growth was fastest in the transport index, fuelled by the continued hike in tricycle fares which rose by 33.9 percent in July from 26.8 percent in June.

As people take advantage of looser community quarantines to return to their home provinces, prices of domestic airfare went up by 12.6 percent in July from just 0.2 percent in June.

Ferry and ship fares likewise jumped by 27.7 percent in July from zero growth in June.

The transport component, which account for nearly a fifth of the headline rate, accelerated by 6.3 percent in July from the revised 2.4 percent in June.

The surge in tricycle fares was first seen in June when operators sought to recover losses as most of the country transitioned to a less strict mode of community quarantine.

With the reimposition of the modified enhanced community quarantine (MECQ) in Metro Manila and nearby provinces, National Statistician Dennis Mapa said he expects a renewed surge in transportation prices in the coming months.

“Our expectation is, this will continue. The transport basket of the consumer prices index will experience an uptick in the inflation rate,” he said in a briefing yesterday.

He noted that Metro Manila fares for tricycles — the primary transportation mode used by the poorest households—rose from the average per passenger of P8.50 in July 2019 to P17 in July 2020. In areas outside Metro Manila, this rose from P11 average per passenger in July 2019 to P13 in July 2020.

Other than transportation, the next big contributor to the headline rate in July were price increases for housing, water, electricity, gas and other fuels.

A significant spike was seen in the price of liquefied petroleum gas (LPG) for cooking to six percent in July from 1.7 percent in June. Costs of rentals and water distribution also contributed to the increase.

Restaurants and miscellaneous goods and services was the third largest contributor to the headline rate, bolstered by increases in the prices of prepared meals, barbershop services and personal care products.

Higher prices of alcoholic beverages and tobacco were also seen in July.

Food prices, however, continued to decelerate in July, with the heavily weighted food and non-alcoholic beverages index growing at a slower pace of 2.4 percent in July from 2.7 percent in June.

Rice prices remain depressed for the 15th consecutive month in July. Deflation was likewise seen in the prices of sugar and corn during the month.

Prices of cereals, flour, and bread as well as milk, cheese and egg remained stable in July over June. Slower upticks were seen in the prices of fish, fruits and vegetables.

Mapa said the PSA is closely monitoring changes in the food index because of the possible effects of the reimposition of the MECQ on the supply chain.

“We are monitoring the impact (of the reimposition of the MECQ) on food prices. The supply chain may be affected and there may be increases in the prices of food items,” he said.

Other commodity indexes that registered slower growth in July were household furnishing, clothing and footwear, communication, recreation and culture and education.

Growth in the index of health remained stable at 2.8 percent in July over June.

Headline inflation in the National Capital Region (NCR) accelerated by 2.2 percent in July while in Areas Outside NCR (AONCR), growth was faster at 2.9 percent.

Consumer prices for the bottom 30 percent income households slowed down to 2.9 percent in July from three percent in June.

Mapa said this is largely attributable to the deceleration in food prices as these households are sensitive to movements in the food basket.

“The food inflation actually slowed down so that has an impact on the inflation of the bottom income households. The weight of the food and non-alcoholic beverages on bottom income households is about 58 percent and 38 percent for all income households,” he said.

Because of this, the government can be expected to closely monitor prices and ensure the stability of supply of staples especially rice.

“They are sensitive to movements in food prices. That is why we are also mindful of changes particularly in rice prices.”

Socioeconomic Planning Secretary Karl Chua said the unhampered and sufficient supply of essential commodities will keep consumer prices stable.

“Although we expect that the overall consumer prices will remain benign until 2021, we recognize that the upside risks to the inflation outlook still remain,” he said.

“We need to remain vigilant and ensure that strategies are well-placed to ensure stable supply and delivery of essential commodities in all parts of the country.”

This entails easing bottlenecks in checkpoints, continued implementation of food resiliency protocols, extended provision of mobile markets, and constant encouragement on the use of digital marketing platforms.

“We also need to guard against the spread of animal-borne diseases through strengthened border control and phytosanitary measures and be well-prepared for upcoming typhoons this year to prevent loss of lives and mitigate damage to the economy,” Chua said. – Czeriza Valencia