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Faster-than-expected Philippine inflation rate in August has prompted several economists to raise their forecasts for this year and 2024.

Inflation unexpectedly accelerated for the first time in seven months in August, as food and transport costs rose. Headline inflation quickened to 5.3% in August from 4.7% in July, ending six months of decline.

Nomura Global Markets Research raised its Philippine inflation projection to 5.9% for this year from 5.3% previously. It also hiked its 2024 inflation forecast to 3.6% from 3.1%.

GlobalSource Partners also upwardly adjusted its inflation forecast to 5.8% for this year from 5.5% given in August.

Pantheon Macroeconomics hiked its inflation projection to 5.6% (from 5.4% previously) for 2023 and 2.8% (from 2.6%) for 2024.

Also, Citigroup, Inc. raised its inflation expectation for this year to 5.6% from 5.4% previously. It hiked its 2024 inflation forecast to 3.1% from 2.9% previously but kept its 3.3% projection for 2025.

The BSP currently sees inflation averaging at 5.6% for this year before easing to 3.2% for 2024.

Nomura Chief Association of Southeast Asian Nations (ASEAN) Economist Euben Paracuelles said in a note that risks to food inflation have materialized early.

In August, food inflation alone quickened to 8.2% from 6.3% in July amid a spike in rice and vegetable prices.

“We expect upward pressure on food prices to intensify in the coming months owing to the ongoing El Niño phenomenon and the lagged effects of rising international food prices, which are likely to be exacerbated by increased protectionism among food exporters,” he said.

The El Niño weather event is expected to strengthen towards the latter part of the year and persist until the first quarter of 2024.

Citi said inflation expectations have risen due to elevated food prices, but inflation should return to the BSP’s 2-4% target band by the fourth quarter.

Nomura also raised its core inflation forecast to 6.4% from 6.2% previously, amid likely spillovers from high food and fuel prices. However, it noted that second-round effects may be more limited due to weakening demand. 

Core inflation, which excludes volatile prices of food and fuel, eased to 6.1% in August, from 6.7% in July, but above 4.6% in the same month last year.

Nalin Chutchotitham, economist for the Philippines at Citigroup, Inc., said in a note on Wednesday that the country is still vulnerable to rice inflation.

Rice inflation accelerated to 8.7% in August from 4.2% in July, its sixth straight month of increase. It was also its fastest pace since the 9% print in November 2018 when the country experienced a shortage of rice.

Ms. Chutchotitham said recent typhoons and El Niño could impact rice supply in the second half and up until next year.

“The government said it will allow more imports to ensure adequate supply, but the private sector appears to be waiting for global prices to stabilize before securing more imports,” she added.

Rice price cap
Analysts said the recently imposed price cap on rice may help alleviate inflationary pressures.

“Government measures such as the price ceiling on rice and a possible reduction in import tariffs should help ease these pressures, but likely only temporarily owing to the lack of fiscal space,” Nomura’s Mr. Paracuelles said.

The government on Tuesday began implementing a price ceiling of PHP 41 per kilogram for regular milled rice and PHP 45 per kilogram for well-milled rice, as it sought to combat price manipulation and hoarding.

“The authorities are hoping to nip this renewed upward pressure in the bud… (rice) is a staple in the Philippines and, together with vegetables, was mainly to blame for the latest leap in prices,” Pantheon Chief Emerging Asia Economist Miguel Chanco said in a Sept. 6 report.

He noted that September inflation data would show if the price ceiling is effective in relieving upward pressures or if it will “inadvertently lead to widespread shortages.”

“Nevertheless, the longer-term outlook for food inflation appears benign, as it is yet to reflect fully the more subdued gains globally, which leads by roughly half a year. The action in food prices last month masked big crosscurrents in oil-sensitive components,” he added.

GlobalSource analyst Marie Christine Teng in a note on Sept. 5 said that the price ceiling will be able to arrest the rapid increase in prices.”

“However, forecasts suggest that rice stocks will still be tight even as the country heads into another El Niño weather disturbance later this year. Hence, prices may stay high, especially if import costs remain higher than the price caps,” she added.

Policy
Meanwhile, analysts said the BSP is unlikely to end its policy pause despite the quicker August inflation.

“In terms of monetary policy, we maintain our forecast that BSP will leave its policy rate unchanged at 6.25% over the next few months, although we see a rising risk of BSP resuming its hiking,” Mr. Paracuelles said.

The Monetary Board last month paused for a third straight meeting, keeping its key policy rate at a near-16 year high of 6.25%. From May 2022 to March 2023, the central bank hiked benchmark interest rates by 425 basis points (bps).

Pantheon Macroeconomics’ Mr. Chanco said that the recent inflation print is “unlikely to have a bearing on the BSP’s current pause.”

Citi’s Ms. Chutchotitham said that she does not expect further rate hikes from the BSP amid easing core inflation, weak second-quarter growth, and the government’s efforts to bring down rice prices.

“We continue to expect no change in the policy rate through early 2024. The BSP had cautioned about upside risks to inflation, but several factors would support the BSP’s continued pause,” she added.

Mr. Paracuelles said the central bank may be encouraged to resume its tightening cycle if core inflation stops declining.

“For now, despite the weakening growth outlook, BSP will likely maintain its hawkish rhetoric, underscoring that it remains vigilant against inflation risks and that it will continue to pledge its readiness to act if conditions warrant,” he added.

The Monetary Board is set to meet on September 21. — Keisha B. Ta-asan

Philippine exports likely posted a modest growth in July, despite sluggish global demand, according to economists and business groups.

Danilo C. Lachica, president of the Semiconductor and Electronics Industries in the Philippines Foundation, Inc. (SEIPI), said electronics exports are recovering but “maybe not at the same level as last year’s July year-to-date.”

In a text message, Mr. Lachica said electronics exports are still recovering from the 15% contraction in the first quarter.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said there may have been modest gains in exports in July.

“However, global trade remains sluggish on soft demand and thus any gains may be limited,” Mr. Mapa said in a Viber message.

The Philippine Statistics Authority is scheduled to release international merchandise trade statistics for July on Friday (September 8).

The trade gap reached USD 27.96 billion in the first six months of 2023, narrower than the USD 29.84-billion deficit a year ago. This as exports declined by an annual 9.3% to USD 34.94 billion, while imports fell by 8% to USD 62.9 billion.

“Both exports and imports recently corrected higher in recent months. Exports are already up from near three-year lows a few months ago and recently among seven-month highs,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

He noted the exports were earlier weighed by the risk of a recession in the United States.

The Development Budget Coordination Committee’s 2023 exports and imports growth assumptions are set at 1% and 2%, respectively.

Meanwhile, Confederation of Wearable Exporters of the Philippines Executive Director Maritess Jocson-Agoncillo said the decline in garments exports could continue for the rest of the year.

She noted all four sectors of the wearable industry — apparel, textile, travel goods, and footwear — contracted by 22% in the first semester.

“We have been seeing the trend since the start of the year where we are hitting a double-digit negative growth which is not very good. The market has slowed down and we even have major brands that have pulled out,” Ms. Jocson-Agoncillo said in a phone interview.

However, she said the industry is expected to start exporting this month the product lines for spring and summer 2024.

“But even if it picks up, (our industry’s) growth can only be a single-digit thing because we had a double-digit decline,” Ms. Jocson-Agoncillo said.

Meanwhile, Philippine Exporters Confederation, Inc. President Sergio R. Ortiz-Luis, Jr. said exports will likely be an improvement from last year’s figures.

“I think at the end of the year it will have an improvement even if it is coming at a high base and despite the many supply chain disruptions. It will surpass 2022 business level but not so much,” Mr. Ortiz-Luis said in a phone interview.

For 2022, exports rose by 5.6% to USD 78.84 billion from a year earlier, while imports grew by 17.3% to USD 137.16 billion. This brought the full-year trade balance to a record USD 58.32-billion deficit.

ING’s Mr. Mapa said exports may contract by yearend as demand fades.

The lower risk of a recession in the US may help support further recovery in exports, Mr. Ricafort said.

“The US dollar/peso (exchange rate) being among nine-month highs would help make Philippine exports cheaper or more price competitive from the point of view of international buyers, a factor that could help support further pickup in exports,” he said. — By Justine Irish D. Tabile, Reporter

Philippine President Ferdinand R. Marcos, Jr. secured USD 22 million (PHP 1.3 billion) in investment pledges from Indonesian companies in the animal health, artificial intelligence (AI) and digital sectors, according to the Presidential Palace.

Mr. Marcos met with top executives of Indonesian companies on the sidelines of the Association of Southeast Asian Nations (ASEAN) Summit in Jakarta.

In a statement, the Palace said PT Vaksindo Satwa Nusantara is planning to invest $2 million as it works with Univet Nutrition and Animal Healthcare Company Philippines (UNAHCO, Inc.) on veterinary vaccines. The company, known as Indonesia’s first animal vaccine maker, is expected to provide the Philippines with an avian influenza vaccine.

Mr. Marcos also met with executives of PT WIR Asia Tbk, described as the first metaverse company in Indonesia. WIR’s subsidiary PT Mata Nilai Republik is planning to invest $20 million in the Philippines in the next five years.

The President also met with executives of satellite company Pasifik Satelit Nusantara (PSN). PSN last year signed a memorandum of understanding (MOU) with WIT Philippines, Inc., which would involve the launch of a satellite by December that would help improve digital connectivity in the country.

Mr. Marcos’ business meetings were led by the Department of Trade and Industry (DTI) through the Philippine Trade and Investment Center-Jakarta.

“The meetings were a follow-up to the President’s state visit to Indonesia, aimed to forge strategic linkages and partnerships between the Philippines and Indonesia in key sectors, such as agriculture, specifically animal vaccine manufacturing, digital technology, and innovation,” the DTI said in a statement.

Separately, the Palace said the Philippine private sector had signed a deal with its Southeast Asian counterparts to improve ties in agriculture and small business development, as the region seeks to promote economic integration.

The memorandum of understanding signed by members of the ASEAN-Business Advisory Council (BAC) aims to jointly conduct studies and mentorship opportunities for potential agriculture, agriculture technology, food security, agri-preneurship business models and value chain development among small, medium, and large farmers, enterprises, and government entities.

The development of trade and investment opportunities in various agricultural commodities including rubber, rice, corn, fruits, vegetables, and other agricultural services is expected under the joint cooperation, the DTI said.

Separate MOUs were signed for each cooperation with Thailand, Brunei, Singapore, Laos, Cambodia, Vietnam, Myanmar, and Indonesia through their respective ASEAN-BAC representatives.

The Philippines was represented by ASEAN-BAC Philippines Chairman Jose Ma. Concepcion III, a member of Mr. Marcos’ Private Sector Advisory Council.

“All member states also agreed to jointly promote effective strategies in addressing climate change and ensure a sustainable agribusiness environment,” the Palace said.

Speaking at the ASEAN-BAC roundtable dialogue, Mr. Marcos said the Philippines seeks to deepen economic ties with ASEAN countries through the Regional Comprehensive Economic Partnership (RCEP).

“It is a catalyst that is seen to bring in even more collaboration amongst ASEAN member states,” he said. “We are positive that RCEP will further deepen economic integration and significantly contribute to the economic growth of the region.”

RCEP, which covers nearly a third of the global population and about 30% of its global gross domestic product, took effect locally on June 2. Participating countries include the members of ASEAN, Australia, China, Japan, New Zealand, and South Korea.

The trade deal is heavily supported by China, whose trade with member countries, according to a May 2022 analysis from China Briefing, accounted for 30.4% of Beijing’s total foreign trade value.

Critics of RCEP have already warned that the trade deal would only make the Philippines heavily reliant on imports from China and prevent the Southeast Asian nation from pursuing trade diversification. — K.A.T. Atienza

Headline inflation accelerated for the first time in seven months in August, amid a spike in the prices of rice, vegetables and fuel, the Philippine Statistics Authority (PSA) said on Tuesday.

Preliminary data from the PSA showed the consumer price index (CPI) quickened to 5.3% in August from 4.7% in July, but slower than the 6.3% clip a year ago.

This was above the 4.9% median estimate in a BusinessWorld poll conducted last week. However, it settled within the Bangko Sentral ng Pilipinas’ (BSP) 4.8-5.6% forecast range for the month.

August also marked the 17^th consecutive month that inflation surpassed the BSP’s 2-4% target range.

At 5.3%, last month’s inflation print was the fastest in two months, or since the 5.4% in June. Stripping out seasonality factors, month-on-month inflation inched up 1.1% in August. 

For the first eight months of 2023, inflation averaged 6.6%, still above the BSP’s 5.6% full-year projection.

Core inflation, which excludes volatile prices of food and fuel, further eased to 6.1% year on year in August. This was lower than the 6.7% seen in July, but above the 4.6% in August last year. 

“Higher prices for oil and key agricultural commodities drove inflation during the month,” the BSP said in a statement.

National Statistician Claire Dennis S. Mapa said inflation was mainly driven by the faster annual increase in the heavily weighted index for food and nonalcoholic beverages to 8.1% in August from 6.3% in the previous month.

Food inflation alone quickened to 8.2% in August from 6.3% in July.

Rice inflation surged to 8.7% in August from 4.2% in July due to tight supply. This was the fastest pace since the 9% print in November 2018 when the country experienced another rice shortage. August also marked the sixth straight month of increase or since 2.2% in February.

Mr. Mapa noted that an increase in rice prices typically signals rising inflation since rice accounts for 8.9% of the total CPI basket for all income households and 17.9% for the bottom 30%.

Meanwhile, inflation for vegetables, tubers, plantains, cooking bananas and pulses climbed to 31.9% in August from 21.8% a month prior. This was the fastest since 33% in February.

Mr. Mapa said recent typhoons have caused agricultural damage, which drove up prices of vegetables and rice, especially in Central Luzon.

Bank of the Philippine Islands (BPI) Lead Economist Emilio S. Neri, Jr. said the inflation trend in the next few months will largely depend on food supply.

“The upcoming harvest season for rice may help in stabilizing the price of the commodity. However, local production can only cover around 85% of rice consumption and the country needs to import the rest from abroad,” he said in a note.

Mr. Neri said retail prices may stay elevated in the near term, as global rice prices are at a 12-year high. There may be uncertainties as well on the ability of other countries to supply rice amid the El Niño weather event.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa in a note said the uptick in August inflation was a reversal from the steady downtrend in inflation in the last six months.

“With supply shocks to important food items and imported energy, we could see a resumption of price pressures building up,” he said.

The government on Tuesday began implementing a nationwide price ceiling on regular and well-milled rice as part of efforts to address rising prices of the national staple.

Fuel prices
“Another threat we are looking at is the consistent increases in fuel prices (in recent months). If pump prices continue to rise, other commodity items may be affected,” PSA’s Mr. Mapa said.

PSA data showed transport inflation quickened to 0.2% in August from -4.7% in July, ending three months of decline.

In August alone, oil firms hiked fuel prices by PHP 5.90 per liter for gasoline, PHP 9.90 per liter for diesel and PHP 10 per liter for kerosene.

Meanwhile, the inflation rate for the bottom 30% of income households rose to 5.6% in August from 5.2% in July. However, it was slower than the 7.3% print in August 2022.

From January to August, inflation averaged 7.4% for the bottom 30%.

In the National Capital Region (NCR), inflation inched up to 5.9% from 5.6% in July. Inflation in areas outside NCR accelerated to 5.2% in August from 4.4% in July.

Policy outlook
The BSP said inflation may remain elevated in the coming months due to the impact of supply shocks on food prices as well as the increase in global oil prices.

Despite the uptick in August, the central bank said it still projects inflation to decelerate to within the 2-4% target by the fourth quarter.

“The BSP stands ready to adjust the monetary policy stance as necessary to prevent the further broadening of price pressures as well as the emergence of additional second order effects in view of the persistent upside risks to the inflation outlook,” the BSP said.

The BSP has kept the key rate steady at 6.25% at its last three meetings. It has raised borrowing costs by 425 basis points (bps) from May 2022 to March 2023 to curb inflation.

According to the BSP, the balance of risks to the inflation outlook remains on the upside due to the potential impact of additional transport fare increases, higher-than-expected minimum wage hikes in other regions, and supply constraints for key food items.

It also cited the El Niño weather phenomenon and the likely knock-on effects of higher toll rates on prices of agricultural products as upside risks to the inflation outlook.

The impact of a weaker-than-expected economic recovery globally remains as the primary downside risk.

“The August upside surprise now has BSP on notice although we doubt one data point will be enough for Governor Eli M. Remolona, Jr. to flip back into tightening mode,” ING’s Mr. Mapa said.

Should inflation for rice, electricity and transportation accelerate further, he said that Mr. Remolona will not hesitate to raise rates to get a hold of inflation expectations.

Finance Secretary Benjamin E. Diokno said that the government is “resolute” in mitigating the impact of inflation on the public.

“While we are seeing a slight uptick, our inflation rate assumption of 5% to 6% for full-year 2023 remains doable,” he said in a separate statement.

With the higher-than-expected August print, Pantheon Chief Emerging Asia Economist Miguel Chanco said they have raised their average inflation forecasts to 5.6% for this year and 2.8% for 2024 from 5.4% and 2.6% previously.

“A return to the BSP’s target range in the fourth quarter still is very much in the cards, from our perspective, given the favorable food base effects from the fourth quarter last year,” Mr. Chanco said in an e-mail.

“We continue to believe that the BSP will cut its benchmark rate by 50 bps in the fourth quarter in order to take pressure off the economy, though the risks to this forecast are now more skewed to the upside,” he added.

For BPI’s Mr. Neri, rate cuts are still premature due to the likelihood of inflation remaining above target in the next six months.

“It should be noted that inflation has been above the target of the BSP for almost two years already. A longer period of above-target inflation may affect the BSP’s credibility as an inflation targeting central bank, which in turn may limit their ability to control inflation,” he said.

“Inflation can easily bounce back given these conditions. With the trade and current account deficit of the Philippines at substantial level, the BSP may find it difficult to decouple its monetary policy from that of the US,” he added.

The next meeting of the Federal Open Market Committee is scheduled for Sept. 19-20, while the BSP’s next policy meeting is on Sept. 21. — By Keisha B. Ta-asan, Reporter