Inflation Preview: Price hikes float to the surface

While rice prices stay on the decline, inflation will heat up in August compared to the near six-year low in July.

Accelerating food prices due to disruptive weather and higher energy costs will be the likely culprits for the increase.

Metrobank forecasts August consumer price increase to settle at 1.3% year-on-year, still below the government’s 2-3% full-year average inflation target. Month-on-month, inflation is seen at 0.4%.

Rice supply

Rice deflation showed no sign of stopping in August, as rice prices continued to dip.

This can be attributed to continually rising volumes of locally produced and imported rice, especially before the announced 60-day rice import ban which will take effect on September 1. Rice supply runs at a five-year high and may justify a pause on imports of the grain.

As a result, rice is expected to be a large downward driver for this month’s inflation rate.

Rain-fed price rise

Food prices saw mixed trends in August.

Fish and vegetable price gains accelerated, after a series of typhoons curtailed supply over the period. Meanwhile, the price of meat and fruits continued to rise year-on-year, albeit at a slower pace.

Energy fuels inflation

The rise in energy prices accelerated this month and is expected to be among the main drivers of August inflation.

The three largest electricity players—namely Manila Electric Company, Visayan Electric Company, and Davao Light and Power Company— implemented upward rate adjustments in August, citing higher power supply costs and transmission charges.

Meanwhile, the year-on-year decrease in pump prices slowed even after fluctuations this month. These movements were in reaction to global supply concerns and demand projections, as well as to developments in existing geopolitical tensions.

Metrobank’s Take

We forecast August inflation at 1.3% year-on-year, with upside pressure from higher energy costs and typhoon-stricken vegetable production and fish harvest, partially offset by sustained rice deflation.

(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.