Inflation seen to breach 5% in Q2

MANILA, Philippines — New York-based think tank Global Source Partners Inc. expects Philippine inflation to breach five percent in the second quarter and remain elevated for the rest of 2022.

In a commentary, former finance undersecretary Romeo Bernardo, country analyst at Global Source, said the consumer price index may continue to accelerate due to soaring global oil prices.

“Thus, if oil prices remain at current elevated levels, the headline inflation rate could very well breach five percent by the second quarter and remain elevated for the rest of the year,” Bernardo said.

Inflation rose to a six-month high of four percent in March from three percent in February, bringing the average to 3.4 percent in the first quarter.

“The large upward adjustments last month in domestic pump prices pushed up the headline inflation rate to four percent, the upper end of the BSP inflation target,” Bernardo said, referring to the Bangko Sentral ng Pilipinas.

He said the headline rate reflects a month-on-month inflation rate of 0.6 percent, witch may be traced almost entirely to increases in “electricity, gas and other fuels,” and “fuels and lubricants for personal transport equipment.”

“With the disruption in global oil markets and continuing uncertainties caused by Russia’s invasion of Ukraine and resulting western sanctions, we expect domestic price pressures to persist especially as higher fuel costs creep into prices of other goods and services,” Bernardo said.

He said several companies, especially in the food industry, are deferring price adjustments despite the surge in input costs such as wheat, sugar, corn and transportation to cushion demand.

However, Bernardo said exhaustion of inventories amid continuation of hostilities may prod companies to start raising prices.

“Second-round impacts are being managed surgically by the economic team through a combination of direct subsidies to avert transport fare hikes and increasing food supplies through temporary relaxation of selected trade barriers, among others,” Bernardo said.

He said the additional pressures are coming not only from peso depreciation, but also an upswing in wage demands.

Based on its latest assessment, the BSP sees inflation accelerating faster to 4.3 percent instead of 3.7 percent for 2022 and 3.6 percent instead of 3.3 percent for 2023.

Amid soaring global oil prices, the BSP expects inflation breaching the target and averaging 4.4 percent if Dubai crude oil rises to $120 per barrel and 4.7 percent if it hits $140 per barrel.

The Monetary Board also raised its Dubai crude oil price assumptions to $102.23 instead of $83.33 per barrel for this year and to $88.21 instead of $75.69 per barrel for next year.