Inflation further cooled to 6.6% in April

By Keisha B. Ta-asan, Reporter

Philippine annual inflation further slowed for a third straight month in April, as prices of food, transport, and utilities continued to ease.

This could bolster the case for the Bangko Sentral ng Pilipinas (BSP) to pause its tightening cycle at its policy meeting later this month.

Consumer prices rose by an annual 6.6% in April, from 7.6% in March but faster than 4.9% in April a year ago, preliminary data from the Philippine Statistics Authority (PSA) showed.

The April print was the slowest in eight months or since the 6.3% print in August 2022. It was below the 7% median estimate in a BusinessWorld poll last week.
The headline figure settled within the BSP’s 6.3-7.1% forecast range for April.

April marked the 13th straight month that inflation breached the central bank’s 2-4% target range.

Month on month, inflation inched down by 0.2%. Stripping out the seasonality effects on prices, April’s inflation steadied at zero percent, month on month from March.
For the first four months of the year, inflation averaged 7.9%, higher than 3.7% seen a year ago.

Core inflation also slightly slowed to 7.9% in April, easing from the 8% in March which was the highest since the 8.2% print in December 2000.

At a press briefing, PSA Undersecretary and National Statistician Claire Dennis S. Mapa said food and non-alcoholic beverages were still the main source of the deceleration in inflation.

Prices of heavily weighted food and non-alcoholic beverages rose by 7.9% in April, easing from 9.3% in March. Still, this is significantly above the 3.8% in April 2022.

The food-alone index also decelerated to 8% in April from 9.5% the previous month. However, it quickened from the 4% from a year ago.

Mr. Mapa said the downtrend in food inflation was due to slower rise in prices of vegetables, tubers, plantains and cooking bananas (10% in April from 20% in March), fish and other seafood (7% from 9.9%), meat and other parts of slaughtered land animals (4.2% from 4.6%), and ready-made products (9.5% from 10%).

Price increases for corn; milk and other dairy products; oils and fats; as well as sugar, confectionery and desserts also slowed during the month.

However, higher annual increases were seen in rice (2.9% from 2.6%); and fruits and nuts (14.7% from 13%).

According to Mr. Mapa, rice inflation has been on the rise since February. Rice inflation went up to 2.9% in April from 2.6% in March and 2.2% in February.

“Given the current weather situation of the El Niño, food commodities are being threatened,” he said in mixed English and Filipino, adding that the PSA is closely monitoring the impact of El Niño on food prices.

Meanwhile, he also attributed the slower April inflation to decreasing costs for transport, housing and utilities.

PSA data showed inflation in transport slowed to 2.6% in April from 5.3% in March, and from 13% last year.

Housing, water, electricity, gas, and other fuels eased to 6.5% in April from 7.6% the prior month and 6.9% a year ago.

Bank of the Philippine Islands Lead Economist Emilio S. Neri Jr. said the deceleration of transport inflation is in line with the recent trend in global oil prices.

He noted US West Texas Intermediate rose to $79.45 in April amid the reopening of China, but this is still 22% lower than the levels in the same month last year.

Inflation for housing and utilities slowed mostly driven by lower electricity rates in April, Mr. Neri said. This is as Manila Electric Co. slashed the overall rate for a typical household by P0.1180 to P11.3168 per kilowatt-hour in April.

BOTTOM 30% INFLATION

Meanwhile, the inflation rate for the bottom 30% income households further slowed to 7.4% in April from 8.8% in March. Still, this is higher than the 5% in March 2022.

Headline inflation in the National Capital Region also decelerated to 7.1% in April, from 7.8% in March. Areas outside of NCR also saw inflation ease to 6.5% in April, from 7.5% in the prior month.

All regions saw slower annual inflation in April.

National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan said he is optimistic that the downward trend in inflation will continue.

“It is important to design policies and interventions to help those that will be affected by El Niño, through the provision of seeds or seedlings of non-water- loving crops or crop varieties. Additionally, the government must remain proactive in curbing animal disease outbreaks through stronger border protection and monitoring,” he said in a statement.

Finance Secretary Benjamin E. Diokno said the consistent slowdown in the inflation rate over the last three months shows that government measures in addressing inflationary pressures are “bearing fruit.”

“We are on track to managing inflation to within target sometime in the fourth quarter, if not sooner, and near the midpoint of the target range of 2-4% by next year,” Mr. Diokno said.

A PAUSE?

The Philippine central bank in a statement said April inflation is in line with its overall outlook that inflation will remain elevated before easing back to the 2-4% target range before end-2023.

The BSP sees full-year inflation averaging at 6% in 2023, before slowing to 2.9% next year.

However, risks to the inflation outlook “remains tilted heavily towards the upside” amid ongoing supply shortages, the impact of higher transport fares, increasing electricity rates, and above-average wages this year.

“The Monetary Board will consider the latest inflation outturn along with the upcoming GDP (gross domestic product) release for the first quarter in its meeting on May 18 as it remains committed to adjusting the monetary policy stance as necessary to prevent the further broadening of price pressures as well as the emergence of additional second order effects,” it said.

The Monetary Board has raised borrowing costs by 425 basis points since May last year, bringing the key policy rate to a near 16-year high of 6.25% to tame inflation.

BSP Governor Felipe M. Medalla earlier said the Monetary Board may consider a pause at the next policy meeting this month should inflation fall further in April.

“Today’s report increases the chances of a pause from the BSP at the 18 May meeting after month-over-month inflation was negative for a second month,” ING Bank N.V. Manila Senior Economist said in an e-mail.

“Slowing inflation and a relatively stable currency could be enough to convince Governor Medalla to bring his recent tightening cycle to an end,” he added.

However, second round effects, as evident in elevated core inflation, may take time to dissipate, BPI’s Mr. Neri said.

“Second round effects continue to exert inflationary pressure on certain items like restaurants, as reflected by core inflation. These establishments have raised their prices further as a response to the inflation seen in previous month,” he said.

Based on PSA data, inflation on restaurants and accommodation services rose to 8.6% in April from the 8.3% a month ago. Inflation for personal care (5.7% from 5.6%) and recreation (4.7% from 4.6%) also quickened.

“Even though headline inflation has gone down, price adjustments of these establishments may persist for a while as they continue to catch up with the higher cost of raw materials,” Mr. Neri said.

He said that restaurants and the services sector may still adjust their prices higher as consumer demand remains strong. Food also remains vulnerable to supply shocks.

“The BSP may justify a pause in its rate hikes considering the current path of headline inflation. However, we are not counting out another hike in the upcoming meeting since core inflation remains elevated,” he said, adding that persistent second round effects may require further tightening.

Mr. Neri also noted that there are uncertainties surrounding the tightening cycle of the US Federal Reserve.

The US Federal Reserve delivered a 25-bp rate hike at its policy meeting on Wednesday, as expected by financial markets. It has now raised borrowing costs by 500 bps since March last year, bringing the Fed fund rate to 5-5.25%.