By Luisa Maria Jacinta C. Jocson, Correspondent
HEADLINE INFLATION is likely to have eased in February owing to the drop in prices of rice and other essential goods, according to analysts.
A BusinessWorld survey of 18 analysts carried out last week revealed a median prediction of 2.6% for the February consumer price index (CPI). This figure falls within the Bangko Sentral ng Pilipinas’ (BSP) forecast of 2.2%-3% for the month.
If actualized, February inflation would be lower than January’s 2.9% and the 3.4% rate of the same month in 2023.
This would mark the lowest monthly figure in four months, or since the 2.3% noted in October.
The Philippine Statistics Authority is set to reveal February inflation data on Wednesday (March 5).
“Factors contributing to price increases this month include elevated electricity rates and oil prices, along with rising costs of crucial agricultural products like fish and meat,” the BSP stated in its announcement.
However, these price pressures were likely counteracted by reduced prices of rice, fruits, and vegetables along with adverse base effects, it added.
“Lower gasoline and diesel prices, a weaker US dollar, and declining electricity and rice prices will help balance out general food price increases compared to a year earlier,” remarked Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines (UnionBank).
According to analysts, the decrease in rice prices likely contributed to the drop in CPI this month.
“Our February inflation prediction stands at 2.6% due to decreasing rice prices as a result of increased supply in the market following the declaration of a food security emergency,” commented Reinielle Matt M. Erece, economist at Oikonomia Advisory and Research, Inc.
Last month, the Department of Agriculture (DA) declared a food security emergency concerning rice, allowing the National Food Authority (NFA) to distribute buffer stocks at subsidized rates. Local government units can procure NFA rice at P33 per kilo and sell it to consumers at P35 per kilo.
On Feb. 15, the DA also reduced the maximum suggested retail price (MSRP) of 5% broken imported rice to P52 per kilo from P55 previously. This price was further lowered to P49 per kilo as of March 1.
“The primary contributor to the slowdown was most likely rice. Not only were there favorable base effects on rice, but rice prices also declined on a month-to-month basis,” noted Aris D. Dacanay, economist for ASEAN at HSBC Global Research.
Chinabank Research stated that the reduction in inflation in February was chiefly driven by lower prices of rice and vegetables.
Meanwhile, Mr. Dacanay observed that retail fuel prices began to ease in February amidst a decline in global prices.
In February, pump price alterations recorded a net decrease of P0.05 a liter for diesel and P0.90 a liter for kerosene. However, gasoline saw a net rise of P2.1 a liter.
“Moreover, world oil prices are on a downward trajectory, and while a slight uptick in domestic energy prices is noted, we anticipate overall price stabilization,” added Mr. Erece.
Additionally, ANZ Research indicated that inflation in utilities and transport likely softened year-on-year in February due to favorable base effects.
Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco also remarked on a “softening in inflation in housing and utilities, transportation, and accommodations and dining services.”
Analysts suggested that the strengthened peso during the month could also help mitigate inflation.
“The peso exchange rate has appreciated against the US dollar thus far in February compared to recent months, making it the strongest for the peso in nearly two months,” stated Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort.
“This could assist in easing import costs and overall inflation,” he added.
The peso concluded at P57.995 against the dollar at the end of February, appreciating by 37 centavos from its P58.365 per dollar finish at the end of January.
“Due to the relatively stable prices of consumer goods combined with the strong performance of the peso against the dollar, inflation for February is anticipated to decrease,” commented Emmanuel J. Lopez, a professorial lecturer at the University of Santo Tomas Graduate School.
INFLATIONARY PRESSURES
Conversely, analysts identified factors such as high electricity rates as potential drivers of February inflation.
“Slightly increased electricity prices also counterbalance the decrease in crude oil prices,” stated Citi Economist for the Philippines Nalin Chutchotitham.
Manila Electric Co. (Meralco) raised the overall rate by P0.2834 per kilowatt-hour (kWh) to P12.0262 per kWh in February from P11.7428 per kWh in January.
“Factors driving inflation in February include price hikes in electricity and local petroleum products, as well as elevated prices of select food items like meat, fish, fruits, and vegetables,” noted Security Bank Corp. Vice-President and Research Division Head Angelo B. Taningco.
With the exception of rice, other staple food items could possibly fuel inflation during the month.
“Price pressures will manifest in the food and utilities segments,” remarked Moody’s Analytics economist Sarah Tan.
“Importantly, onion prices surged in February — up to 70% higher than the previous month. This increase has prompted officials to inspect onion storage facilities to ensure that supply is not being withheld from the market amidst the current harvest season,” she added.
Data from the Agriculture department indicate that the retail price of local red onion averaged P174.01 per kilogram as of end-February.
“However, significant price pressures were observed in food items other than rice. Prices of cabbages, bitter melons, onions, and eggplants increased within the 30-50% range year on year due to tight supply conditions stemming from previous typhoons,” stated Mr. Dacanay.
In the upcoming months, headline inflation is anticipated to remain within the 2-4% target range.
“Overall, the inflation outlook remains favorable with food inflation expected to diminish in the near to medium term,” according to ANZ Research.
The BSP projects inflation to average 3.5% this year, factoring in potential risks.
The positive inflation outlook should encourage the central bank to continue its easing strategy, analysts suggested.
“We believe that overall inflation staying beneath the midpoint of the official 2-4% target will enable the BSP to reduce rates by 25 basis points (bps) at its upcoming policy meeting in April,” stated ANZ.
Ms. Tan remarked that the next rate cut could occur as early as April “assuming inflation consistently remains near the midpoint of the target range and the peso stabilizes.”
The Monetary Board’s next rate-setting assembly is planned for April 3.
“From my perspective, I believe the BSP will recommence rate reductions in April, as we are now aware of the current trends.
“BSP was set to implement a decrease this month, but an unexpected rise in policy uncertainty resulted in the postponement,” stated Patrick M. Ella, an economist at Sun Life Investment Management and Trust Corp.
Weak economic performance will also provide the central bank room to persist with its easing measures.
“Assuming inflation expectations remain low and stable, we believe that the MB (Monetary Board) has the capacity to lower the policy rate to bolster GDP (gross domestic product) growth and in response to the recent RRR (reserve requirement ratio) reduction,” remarked Mr. Asuncion.
Last month, the BSP revealed it will decrease the RRR for universal and commercial banks as well as nonbank financial entities with quasi-banking functions by 200 basis points to 5% from 7%, effective March 28.
“A consistent inflation rate coupled with slowing GDP growth serves as an indication for the central bank to implement a rate cut during their upcoming meeting,” noted Mr. Erece.
“While they have lowered reserve requirements for financial institutions, a reduction in the policy rate can enhance investments and expenditures, which are the primary engines of growth for the country.”
UnionBank anticipates a cumulative decrease of 50 basis points this year.
Conversely, analysts have indicated that the BSP might continue to adopt a cautious approach.
“As we look forward, even though inflation remains within the BSP’s 2-4% target range, we believe the BSP will probably keep its cautious position while awaiting more information on global trade policies and their influence on inflation and growth,” stated Chinabank.
In February, the BSP unexpectedly maintained interest rates at 5.75%, marking its first policy meeting of the year.
This action paused the easing cycle, having previously reduced borrowing costs by a total of 75 basis points last year through three consecutive meetings with 25-bp cuts.
BSP Governor Eli M. Remolona, Jr. mentioned that “global trade uncertainties” were the reason behind the decision to hold policy.
Nevertheless, he indicated that the central bank is still in an environment conducive to easing and hinted at the possibility of additional reductions of up to 50 basis points this year.
