Inflation Preview: It’s getting hot in here

The Bangko Sentral ng Pilipinas (BSP) cut policy rates anew this month.

While the effects of monetary easing will take time to manifest in price levels, low base effects may start to kick in and fan inflation moving forward—possibly causing the bond yield curve to steepen.

Still, consumer price rise is seen within the BSP’s target band of 3±1%. Metrobank forecasts headline inflation to settle at 2.4% in February.

Imports play

Rice deflation slowed year-on-year (YoY) to a single digit in January. Farmgate prices of the grain have increased month-on-month, following a four-month import ban, according to the Department of Agriculture (DA).

The ban aimed to protect farmers from a sharp price fall, but the delayed arrival of January imports following its lifting sustained rice price increases, which based on available data persisted until early February.

Still, annual rice deflation continues over February, putting downward pressure on headline inflation for the month.

Meanwhile, onion will be a source of downward pressure on headline inflation, with prices falling as the peak of harvests in March approaches.

Farmer groups point to imports flooding the local market and dragging prices—although the DA claimed that the import volume is not overwhelming.

Back to base

Vegetables, fruits, and seafood should fan inflation in February. Low base effects are likely the reason for this, considering that price rise for these items began slowing in the same period last year.

In contrast, preliminary data from the Philippine Statistics Authority suggests that pork prices may have been lower YoY this month. There was a sharp decline of African Swine Fever cases so far this year, allowing hog production to rebound.

Lighting up the countryside

Electricity will also quicken this month’s inflation. While most electricity rates across the country are higher YoY, the countryside faced notably more elevated electricity prices, specifically from Davao Light and Power Company and Visayan Electric Company.

Meanwhile, despite higher pump prices MoM across the country, gasoline and diesel costs still settled lower YoY for the month. This is in line with global oil-price swings.

Not rent-free

Rental prices for housing were among the top contributors to inflation in January, as annual rental contracts are commonly renewed and repriced at the start of the year.

A faster YoY rise in rental prices may be expected in February and March as more housing lease contracts are renewed.

Metrobank’s take

Food, energy, and rental prices will continue to drive headline inflation in February. With rice and onion prices only partly providing reprieve.

Metrobank forecasts that headline inflation will settle back within the BSP’s target this month, owing to low base effects from last year and short-term challenges in rice and onion supply.

Related article: BSP Update: Giving a subtle nod to growth

The projected uptick in prices should contribute to a steeper bond yield curve in the coming months. Meanwhile, faster inflation could mean BSP may need to refrain from cutting rates too deeply, which could be supportive of the peso.

(Disclaimer: This is general investment information only and does not constitute an offer or guarantee, with all investment decisions made at your own risk. The bank takes no responsibility for any potential losses.)  

  MARIA KAILA BALITE is a Research Officer of the Research and Market Strategy Department, Institutional Investors Coverage Division, Financial Markets Sector, at Metrobank. She holds a Master’s degree in Applied Economics and also majored in Financial Economics for her Bachelor’s degree, both from De La Salle University Manila. Outside of work, she enjoys watching thriller movies and K-dramas.
 

JOAQUIM PANTANOSAS is a Research Officer of the Research and Market Strategy Department, Institutional Investors Coverage Division, Financial Markets Sector, at Metrobank. He holds a BS in Statistics from the University of the Philippines-Diliman, where he developed an interest in quantitative research as a tool for complex problem-solving. He enjoys a good laugh with the people he cares about.