September inflation preview: Will inflation finally slide to the 2% level? 

Our government’s economic managers have practically predicted a slowdown in the rise of prices in September.

Eli Remolona Jr., the Bangko Sentral ng Pilipinas (BSP) Governor, said that September inflation could go lower than last month’s 3.3% year-on-year (YoY) inflation. Finance Secretary Ralph Recto sees it falling to 2.5% YoY, equivalent to a 0.3% month-on-month (MoM) inflation.

Do the numbers support this? If so, by how much will inflation decline?

Using recent data from the Philippine Statistics Authority (PSA), the Department of Agriculture (DA), the Bloomberg database, and other publicly available resources, we have estimated how prices of selected commodities moved in September.

Rice prices continue to decline

Recent available data from the DA and PSA indicate a decline in rice prices from last month, especially with the continuous implementation of the reduction on tariffs on imported rice and the decline in global rice prices.

With this, we could see rice disinflation at around 0.6% MoM. According to DA’s price watch, the average price of local variants of well-milled and regular milled rice on September 25 is PHP 51.0 per kg and 47.5 per kg, respectively. Meanwhile, the prices of imported variants fell lower at around PHP 50 per kg and PHP 45 per kg for well-milled and regular milled rice, respectively.

Rice inflation started to decline on a YoY basis in July as base effects kicked-in, with prices starting to accelerate in August of last year. With the rice inflation spike in September 2023 (8.4% MoM inflation), equivalent to 17.9% YoY, we are expecting to finally see YoY rice inflation in September at single dights at around 6% because of high base effects.

Rice comprises 8.9% of the country’s total Consumer Price Index (CPI).

Inclement weather disrupts fish supply

Fish prices this month went up due to supply disruptions brought on by inclement weather this month. According to the DA’s price watch, galunggong (local round scad) spiked to an average of PHP 320 per kg as of September 25 compared to an average price of PHP 240 per kg by the end of the preceding month, equivalent to a 25% MoM increase.

Moreover, a kilo of tilapia costs an average of PHP 145, which is PHP 10 higher than the average price by the end of the preceding month. Meanwhile, the price of bangus (milk fish) stayed relatively stable.

Given the surge in the prices of fresh fish such as galunggong and tilapia, we could be seeing higher MoM and YoY inflation figures on the fish commodity basket.

Fresh fish comprise 4.2% of the country’s total CPI.

Risks of ASF breakout on meat supply

Pork imports increased to as high as 9.6% for the first half of 2024 compared to the same period last year as the country battled the risk of African Swine Fever (ASF) this year. However, average prices of pork cuts like liempo and kasim based on the September 25 price watch of the DA remained stable at PHP 332.5 per kg.

Meanwhile, the average price of chicken saw an increase to PHP 210 per kg relative to PHP 202.5 at the end of August, which could be a symptom of the lower production of poultry raisers as announced by the United Broiler Raisers Association (UBRA). Similarly, beef has a slight increase, with the average price of beef rump increasing to PHP 450 from the PHP 445 average price in the preceding month. This came as a result of the rising demand for beef as consumers shifted from pork and chicken.

Given the increased prices of beef and chicken, the YoY and MoM inflation of fresh meat are expected to have a greater effect on September’s headline inflation.

Fresh meats comprise 4.8% of the country’s total CPI.

Higer prices of vegetables due to heavy rains

Inclement weather brought about by the southwest monsoon or habagat disrupted the supply of agricultural commodities, driving select vegetable prices up. With lowland vegetables like ampalaya, eggplants, and carrots the most affected, prices of some highland vegetables also increased.

For instance, Baguio beans increasing by as much as PHP 60 in a single month. However, other vegetables such as cabbage, tomato, potato, and native pechay offset the effects. The estimated average YoY inflation of select vegetables decreased by 11%.

Cooking staples such as onion and garlic moved in opposite directions as average onion prices increased slightly to PHP 112 from PHP 110 at the end of last month, while the price of imported garlic decreased to PHP 155 from PHP 150 at the end of last month.

The average price of local garlic has remained stable but has decreased to PHP 400 compared to the PHP 500 price in the same period last year.

Select fruit prices displayed a similar trajectory from last month where average prices of fruits such as bananas, mangoes, and papayas continued to increase. The estimated average YoY inflation of select fruits declined by 13%.

Vegetables comprise 2.8% of the country’s total CPI, while fruits and nuts make up 1.5% of the basket.

Oil price roll backs offset price hikes

Three consecutive oil price rollbacks brought the average gasoline and diesel prices in Metro Manila down to PHP 61.37 and PHP 53.65, respectively, based on the average weekly prices until the week of September 16.

However, these were partially offset by a price hike in the fourth week of September which could have increased average prices by 1.10/liter for gasoline and PHP 0.20/liter for diesel. On a YoY basis, prices have declined by around 15% and 22%, respectively, equivalent to around 6% MoM decline for both.

The Department of Energy (DOE) attributed the price rollbacks to the downward revision of the expected growth in demand by the Organization of Petroleum Exporting Countries (OPEC) and Libya’s resumption of oil production. The recent price hike was due to the 50-basis-point policy rate cut by the US Federal Reserve.

In the global space, Brent and WTI crude oil prices continue to decline on a MoM and a YoY basis.

Gasoline and diesel make up 1.8% and 0.6% of the country’s CPI, respectively.

Electricity rates up until September

Meralco rates in September increased to PHP 11.7882 per kilowatt hour (kWh) after the Manila Electric Company (Meralco) announced a 0.1543 upward adjustment. The continuous increase in electricity rates could still be attributed to Meralco’s staggered collection of the generation costs from Wholesale Electricity Spot Marker (WESM) purchases in May which were distributed in four equal monthly installment payments from June. The recent electricity rate was 1.3% higher MoM and 3.4% YoY.

Meralco is the largest private sector electric distribution utility company in the Philippines and covers 39 cities and 72 municipalities in the Greater Metro Manila area.

The contribution of electricity rates to the country’s CPI is 4.6%.

Metrobank’s take on September inflation

Considering the slowdown in rice inflation and oil prices, and despite the abovementioned upside risks to inflation, we expect September inflation to fall to 2.3% YoY. The forecast is lower than the 3.3% YoY inflation in August and well within the lower bound of BSP’s 2%-4% target range.

The forecasted inflation rate, if realized, would provide a more favorable economic environment, suggesting that government efforts to manage rice prices and global oil price trends are having a positive impact.

This also provides more space for the central bank to deliver two more 25-basis-point cuts each at the remaining Monetary Board meetings this year to help economic growth as inflation slows.

MARIAN MONETTE FLORENDO is a Research Officer of the Research and Market Strategy Department, Institutional Investors Coverage Division, Financial Markets Sector, at Metrobank. She provides macroeconomic analysis and forecasts for the bank. Her academic background is in Mathematics and Economics. She loves solving puzzles and watching mystery movies.

EZRA VIDAR is a Financial Markets Sector Management Trainee at Metrobank. She holds a Bachelor’s Degree in BS Business Economics from the University of the Philippines. Her thesis “Measuring Fiscal Policy Sustainability in Developing Asia: What does the Markov Switching Augmented Dickey-Fuller Test tell us?” won the A.Y. 2022-2023 Gerardo P. Sicat Award for best undergraduate paper which she cowrote with her thesis partner. In her free time, she likes listening to Twice and Taylor Swift.