Inflation has not yet peaked – economist

MANILA, Philippines — Inflation has not yet peaked despite easing slightly to 6.3 percent in August from 6.4 percent in July, according to economists.

Japan-based financial services company Nomura raised its 2022 inflation forecast for the Philippines to 5.3 percent from the original target of 5.1 percent.

Despite easing slightly in August, Euben Paracuelles and Rangga Cipta of Nomura said the inflation results unlikely marked the peak for the consumer price index in the Philippines.

Inflation averaged 4.9 percent from January to August, exceeding the two to four percent target of the Bangko Sentral ng Pilipinas (BSP).

On a sequential seasonally adjusted basis, Paracuelles and Cipta said inflation declined to 0.4 percent month-on-month from 0.6 percent in July, led by the decline by transport inflation to 14.6 percent from 18.1 percent, reflecting an expected decline in fuel prices.

Likewise, food and beverage inflation also fell to 6.3 percent from 6.9 percent, with rice prices still stable and prices of seafood, fish and vegetables falling. However, core inflation surged due to services inflation.

“The authorities released the official core inflation series for the first time, stripping out various food and energy components with a combined weighting of about 29 percent,” Paracuelles and Cipta said.

Despite the slowdown in August inflation, Bank of the Philippine Islands lead economist Jun Neri said there are upside risks that could push inflation higher in the coming months.

“In a conservative scenario, inflation may reach a peak of seven percent in October and stay above 6.5 percent until the end of the year,” Neri said, adding the 171-year-old bank sees inflation averaging 5.5 percent.

Neri said supply constraints in the agriculture sector due to structural problems and bad weather would likely continue to drive the increase in food prices.

Even with increased importation, Neri explained a decline in prices is not guaranteed since the price of global food commodities is also rising at a very fast rate.

Furthermore, he said the depreciation of the peso is also another factor affecting inflation especially now when the country is becoming more reliant on imports.

“Looking ahead, the peso may weaken further given the country’s substantial trade deficit. The increase in oil prices has been a major factor in the expansion of the deficit, but even without this the deficit would still be substantial,” he said.

Aside from import expansion, Neri said the aggressive rate hikes of the US Federal Reserve may continue to exert pressure on the peso that continues to hit record low levels.