Inflation seen settling at 3.8% in February

MANILA, Philippines — Prices of basic goods and services likely eased in February, but the slowdown may not last long as inflation is expected to sharply rise in the coming months, according to London-based think tank Capital Economics.

Headline inflation, which is the rate of increase in the consumer price index, may settle at 3.8 percent in February after it reached a two-year high in January, Capital Economics said.

This is in contrast to the forecast of the Bangko Sentral ng Pilipinas (BSP), which expects inflation to settle between 4.3 and 5.1 percent in February.

“The surge in pork prices last month was driven by a swine fever outbreak weighing on supply, while vegetable prices were driven higher by weather-related disruption,” Capital Economics said.

“But timely data from food markets in Manila suggest both these factors largely unwound in February,” it said.

If Capital Economics’ forecast is correct, February inflation will just be within BSP’s annual target of two to four percent.

The official inflation data will be released on March 5.

“It appears that price caps and government efforts to ramp up imports of pork are now taking effect. The upshot is that inflation is likely to have fallen back, in contrast to the consensus view of another sharp rise,” Capital Economics said.

But the think tank maintained that such a falling back is likely to be short-lived.

Fuel and transport price inflation is set to rise sharply over the coming months as last year’s collapse in global oil prices enters the annual comparison.

In January, transportation costs, which had a 17.4 percent share to the headline rate, accelerated to 8.6 percent as fares for public vehicles rose because of pandemic-related limitations in carrying capacity.

On the other hand, slower declines were seen in the indexes of petroleum and fuels as well as domestic airfare, reflecting the series of fuel price hikes in January as well as the gradual resumption in domestic travel and tourism.

“This should give the central bank reason to pause its easing cycle for now. But the spike will be temporary, and we still expect rate cuts before the end of the year,” Capital Economics said.