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Inflation to remain elevated
In its weekly brief, London-based think tank Capital Economics said headline inflation – the rate of increase in the consumer price index – would remain elevated despite reaching a new two-year high in February.
STAR/ File

Inflation to remain elevated

Louise Maureen Simeon (The Philippine Star) - March 8, 2021 - 12:00am

MANILA, Philippines — Inflation will continue to pick up in the next few months, hitting above government targets, but will eventually taper off by the second half of the year.

In its weekly brief, London-based think tank Capital Economics said headline inflation – the rate of increase in the consumer price index – would remain elevated despite reaching a new two-year high in February.

“Headline inflation is likely to increase further in the months ahead due to a rebound in fuel and transport price inflation,” senior economist for Asia Gareth Leather said.

“However, it should fall back sharply in the second half of the year,” he said.

Inflation quickened for the fifth straight month in February to a new two-year high of 4.7 percent as prices of meat and oil products continue to rise.

It was the fastest increase since the 5.1 percent recorded in December 2018.

“Inflation in the Philippines rose further above the central bank’s two to four percent target last month. However, we expect it to drop back in the second half of the year, opening the door for the central bank to ease policy,” Leather said.

The continued uptick in inflation was largely caused by the spike in prices of food and non-alcoholic beverages at 6.7 percent, as well as transport costs.

In particular, meat inflation soared by 20.7 percent from 17.1 percent in January as the effects of the African swine fever (ASF) continued to pull down supply.

“The government introduced price caps, but today’s data suggest they are not having the desired effect. While prices came down in Metro Manila, where caps are being more rigorously enforced, they climbed outside the capital region,” Leather said.

Capital Economics said food prices would begin to ease if the government is able to increase pork imports, while the jump in fuel and transport price inflation would be  short-lived.

The government is already rushing to cut down tariff rates for pork imports to encourage traders to bring in more supply.

“A weak economic recovery will help keep underlying price pressures in check,” Leather said.

“The upshot is that while high inflation means rate cuts are unlikely in the near term, we still think there is room for the central bank to cut later this year,” he said.

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