Poll: Inflation likely hit 20-month high in March

Sharp oil price increases driven by supply disruptions from the Middle East war, along with pricier rice, may have pushed Philippine inflation to its fastest pace in nearly two years, analysts said.   

A BusinessWorld poll of 18 analysts yielded a median estimate of 3.8% for the consumer price index in March, accelerating from the 2.4% in February and 1.8% a year ago.

This is near the upper end of the Bangko Sentral ng Pilipinas’ (BSP) 3.1%-3.9% forecast for the month.

If realized, the headline print would be the fastest in 20 months or since 4.4% seen in July 2024.

This would also mark the third straight month that inflation settled within the central bank’s target.

The Philippine Statistics Authority (PSA) will release the March inflation data on Tuesday, April 7.

“I’m looking at 3.8% for the March inflation print, with most of the acceleration from 2.4% in February coming from transport deflation coming swiftly to an end on the back of the major fuel price hikes seen in recent weeks,” Miguel Chanco, chief Emerging Asia economist at Pantheon Macroeconomics, said in an e-mail.

He said transport inflation likely quickened to 8.5% last month from -0.3% in February.

“On top of this, we’re expecting a further rise in food inflation where low base effects are still doing a lot of heavy lifting,” Mr. Chanco added.

In March, local fuel retailers raised pump prices by double digits as the US-Iran war sent crude oil prices soaring. Pump price adjustments stood at a net increase of up to PHP 43.50 a liter for gasoline, PHP 67.35 per liter for diesel and PHP 70.90 per liter for kerosene last month.

The Philippines is a net importer of crude oil and sources most of its crude oil as well as liquefied petroleum gas supply from the Middle East. This makes the country extremely vulnerable to global crude price swings.

Analysts also attributed the faster headline clip to higher rice prices and electricity rates during the month.

“In addition, higher rice and power prices, coupled with the continued depreciation of the peso, likely amplified imported inflation pressures, especially for fuel, food, and other essential goods,” Maybank Investment Bank economist Azril Rosli said in an e-mail.

“Some offset may have come from softer prices for vegetables, fish, and meat, but overall price pressures appear to have been dominated by energy-led cost increases and second-round effects in services and utilities,” he added.

Based on PSA data, the average cost of local regular milled rice climbed by 5.8% to PHP 48.69 a kilo in the second half of the month from PHP 46.02 a year earlier. The price of well-milled rice went up by 8.02% year on year to PHP 56.68 a kilo, while the price of special rice rose by an annual 3.79% to PHP 64.07 a kilo.

Manila Electric Co. hiked electricity rates by 64.27 centavos per kilowatt-hour (kWh) to PHP 13.8161 per kWh for its customers in the greater Metro Manila area. This meant households consuming 200 kWh monthly paid about PHP 129 more in their electricity bill for March.

Target breach?

Meanwhile, several analysts see inflation potentially breaching the BSP’s target in March, as base effects and elevated prices of rice and other staple foods add to the inflationary impact of oil shocks.

“We forecast March inflation at 4.2% year on year, up from 2.4% in February, mainly reflecting unfavorable base effects and higher food prices, particularly rice and other key staples, amid tighter domestic supply conditions and lingering import‑related cost pressures,” Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion said in an e-mail.

“Transport and utility costs also likely contributed following recent movements in global oil prices, while core inflation remains relatively stable for now,” he added.

Emerging supply-side pressures could also drive second-round price effects on transport fares, electricity rates and wage-related adjustments, Mr. Asuncion noted.

The BSP wants to keep inflation within the 2%-4% range, with 3% as their point target.

However, the central bank is now expecting the headline print to overshoot the band amid price pressures from elevated oil costs and second-round inflation effects.

If the BusinessWorld poll’s median forecast materializes, headline inflation would average 2.7% as of March, still below the BSP’s revised inflation estimate of 5.1% for the entire year.

Meanwhile, Security Bank Chief Economist Angelo B. Taningco projects inflation to accelerate to 4.4% in March, citing the peso’s slump as one of the drivers.

The peso touched back-to-back record lows last month as uncertainties over the Middle East war took a toll on the local currency.

On Tuesday, the peso closed at a fresh low of PHP 60.748 against the dollar, down 5.8 centavos from its previous record finish of PHP 60.69 on Monday, Bankers Association of the Philippines data showed.

Pause or hike?

Still, most analysts polled by BusinessWorld said the current macroeconomic backdrop calls for a pause at the BSP’s upcoming meeting later this month.

“Easing would risk fueling inflation expectations, while aggressive tightening would weaken growth without addressing the root cause of the shock,” Moody’s Analytics Assistant Director and Economist Sarah Tan said in an e-mail.

“In this context, we expect the BSP to adopt a wait-and-see approach, assessing whether the increase in oil prices proves temporary or sustained. For now, a prolonged pause appears the most realistic path, and we expect the BSP to hold fire at the April meeting,” she added.

However, Security Bank’s Mr. Taningco sees the BSP tightening in a move to temper inflationary pressures.

“We still expect the BSP to raise the policy rate by 25 basis points (bps) to 4.5% at its April 23 meeting,” he said via e-mail. “This is largely in response to March inflation topping the 4% upper bound of the BSP’s target range.”

On March 26, the central bank maintained the key rate at 4.25% in an off-cycle meeting as it sought to soothe markets amid uncertainties arising from the Middle East war.

The BSP last reduced its benchmark rate by 25 bps for a sixth straight meeting in February, extending its easing cycle to a year and a half. It has cut a total of 225 bps since August 2024.

BSP Governor Eli M. Remolona, Jr. said they opted to hold steady as policy adjustments will have little impact on taming supply-driven inflation pressures, adding that tightening may delay economic recovery.

Still, the central bank chief said the Monetary Board will monitor second-round price effects to guide their upcoming policy decisions, with a rate hike likely if the price of crude oil reaches USD 200 per barrel.

The Monetary Board will hold its second policy review this year on April 23. — Katherine K. Chan, Reporter