Economy 5 MIN READ

Transport costs seen to climb in August

August 4, 2023By BusinessWorld

Consumers in Metro Manila face higher transport costs this month after recent hikes in train fares and toll fees, coupled with a big-time increase in pump prices.

While the increase in transport costs may put some upward pressure on August inflation, analysts said this might not be enough to cause another significant spike.

“The increase in transport costs is likely to put some upward pressure on inflation in August, as it will force some consumers to spend more on transportation,” Security Bank Corp. Chief Economist Robert Dan J. Roces said in a Viber message.

Oxford Economics Assistant Economist Makoto Tsuchiya said the recent hike in fuel prices would have a bigger impact on transport inflation, with both diesel and gasoline having a higher share in the consumer price index.

In the first week of August, prices of gasoline, diesel and kerosene rose by PHP 2.10 a liter, PHP 3.50 a liter and PHP 3.25 a liter, respectively. Crude oil prices have been on a steady rise in the past month, amid concerns over tightening supply as the OPEC+ (Organization of the Petroleum Exporting Countries and allies) group continues to cut output.

“While a price hike of this level will not likely result in reacceleration in inflation, there is an upside risk should pump prices rise much higher,” Mr. Tsuchiya said.

Data from the Philippine Statistics Authority showed the weight of diesel and gasoline to the overall consumer price index basket stood at 0.6% and 1.8%, respectively.

Meanwhile, the recent increase in fares for the Light Rail Transit Lines 1 and 2, as well as the implementation of higher toll fees in some expressways are less likely to affect inflation.

Single-journey tickets at LRT-1 and LRT-2 now cost as high as PHP 35 a ticket.

Mr. Tsuchiya said the LRT fare hikes and higher toll fees might not have a significant impact on headline inflation due to their small weight in the CPI basket. 

“Based on a back-of-envelope calculation, we estimate the combined effect of the LRT fee and NLEX toll hike on monthly inflation rate to be around 0.01 percentage points, which is almost negligible,” he said.

He noted that the second-round effects from the fare adjustments might not cause inflation to quicken in the coming months. 

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort likewise said the fare adjustments might lead to a slight uptick in inflation, but not as much.

“Toll rate hikes are fundamentally spread thinly on truckloads/jeeploads of products passing through NLEX. Same goes with train fare hikes, limited passed on effects on the prices of other goods and services in the economy, a slight effect on prices and overall inflation,” he said. 

Transport inflation has been on a downward trend since rising by 18.1% in July last year. Latest data from the Philippine Statistics Authority (PSA) showed transport inflation decelerated to -3.1% in June.   

“The usual option by the government would be to provide subsidies to help keep fares down. The government could opt to lower taxes on fuel to help offset costs but that would be at the expense of internal revenues that in turn can go to subsidies,” Mr. Roces said. 

Other risks
Despite rising transport costs, analysts said inflation could face risks from the increase in rice prices.

“Given recent measures by India to ban its exports of a certain type of rice, daily rice prices in the Philippines have been rising recently,” Mr. Tsuchiya said.   

“Rice accounts for almost 10% of CPI, meaning if rice prices rise by 10%, it could translate to about one percentage point increase in CPI inflation,” he said, adding that this warrants further monitoring. 

Based on Aug. 2 data from the Department of Agriculture, prices of local well-milled rice rose to as much as P49 per kilogram on Thursday, while special and premium rice went to as high as P62 and P55 per kilo, respectively.

An El Niño dry spell in the fourth quarter could also lead to a reduction in rice production and other agricultural products, which would drive up prices, Mr. Ricafort said.

El Niño will likely persist until the first quarter next year, according to the state weather agency. The weather pattern may cause dry spells and droughts in some areas of the country.   

Mr. Roces said recent weather disturbances could affect the cost of food production and transportation. 

Data from the Department of Agriculture showed Typhoon Egay (international name: Doksuri) brought about PHP 3.17 billion in agriculture damage. About PHP 1.34 billion worth of rice damage was recorded. 

Still, inflation is on track to hit the central bank’s 2-4% target in the next few months, Mr. Roces said. “But significant upsides are developing which bears monitoring.” 

The Bangko Sentral ng Pilipinas (BSP) expects inflation to further ease and return to the 2-4% target by the fourth quarter this year. 

It sees inflation averaging 5.4% this year and 2.9% for 2024, before picking up to 3.2% in 2025. 

A BusinessWorld poll of 17 analysts last week yielded a median estimate of 4.9% for July inflation, settling at the upper end of the BSP’s 4.1-4.9% forecast for the month.

Inflation likely slowed from 5.4% in June and 6.4% in July 2022. July would mark the sixth straight month of easing inflation, and the 16th consecutive month inflation exceeded the BSP’s 2-4% target.

The PSA will release its July inflation data today (August 4). — Keisha B. Ta-asan

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