Philippine inflation expected to rise further until October

CEBU, Philippines —  The Philippines’ inflation rate is expected to inch higher up until October 2022, assuming oil prices will stay at current levels.

According to Bank of the Philippine Islands (BPI), average inflation is expected to settle between 5-5.5 percent.

The contribution of food to inflation will likely expand further in the coming months given the shortage of certain items in the international market amid the conflict in Ukraine and the trade restrictions being put in place by exporting countries like India and Indonesia.

Inflationary pressure on global food items has not subsided and has been exacerbated by the war in Ukraine.

Meanwhile, the price of rice may go up in the coming months because of peso depreciation and recent developments in the international market. Thailand recently floated the idea of working together with Vietnam in order to raise the price of their rice exports. Also, with the price of wheat surging, demand for substitutes like rice may go up which may eventually lead to higher global prices.

Lastly, it should be noted also that the country’s average rice inventory has gone down to a level where rice inflation usually goes up, as shown on the right chart below. The price of rice surged in 2014 and 2018 when rice inventory was at this level.

“With inflation still on the rise, we continue to expect rate hikes from the BSP until the end of the year. Assuming the central bank will continue to hike gradually, the pressure on the Peso will remain substantial since faster rate hikes in the US will make the Dollar more attractive. The depreciation of the Peso will likely translate to more inflation especially now that the economy is becoming more reliant on imported goods,” BPI noted.

Meanwhile, a higher inflation print in the coming months may lead to a situation that could force the BSP to do bigger hikes, similar to what happened in 2018. Hiking the policy rate by 50 bps now rather than later may help in mitigating the risk of bigger hikes in the future that could cause more volatility in the markets.

Consumer prices rose at a faster pace in June, bringing the inflation rate from 5.4 percent to 6.1 percent. The real policy rate has been negative for 21 months.

Inflationary pressures continue to build up, fueled by oil and Peso depreciation.

Food prices increased at a faster rate in June as supply constraints and increasing logistics costs continued to affect food products.

The items with the biggest increase in prices for June are corn, oils, vegetables, sugar, and meat. Transport costs have also gone up at a faster rate given the 50 percent y-o-y increase in oil prices.

To add to this, the y-o-y increase in the housing and utilities component remains substantial at 6.6 percent. The cost of electricity, gas, and other fuels for households increased by 18.3 percent y-o-y in June 2022.