The Bangko Sentral ng Pilipinas (BSP) expects inflation to have settled between 3.2 to 4.0% in August.

What data support this forecast?

First, let us make it clear that in most cases such as in the Philippines, inflation is calculated monthly on a year-on-year (YoY) basis, which shows how much prices have moved over a year or, in other words, relative to prices in the same period last year. However, it is also important to look at the month-on-month (MoM) inflation, which shows how much prices have changed relative to prices in the preceding month as it signals if inflation is speeding up or slowing down.

So, what should we examine to confirm inflation’s trajectory last month?

Using the Philippine Statistics Authority (PSA)’s price situationer reports and other publicly available information, we’ve had a look at how prices of selected commodities moved over the month.

Rice prices have started to ease

Rice has been the major contributor to the uptrend in inflation over the past year, peaking in May at 24.4% year-on-year (YoY). Rice inflation is currently driven by rising global prices and the relatively short supply in the local space, exacerbated by base effects.

The PSA price situationer shows that rice prices started to accelerate mid-August 2023, with the price of well-milled rice averaging PHP 50.69, increasing 8% from the first half of the month when average price stood at PHP 46.92. Around mid-August this year, the price of well-milled rice averaged PHP 56.11.

As base effects kick in, rice inflation likely settled around 15% YoY. Meanwhile, the latest PSA data indicates a 0.5% MoM deflation as lower tariffs have already started to be seen in the retail prices of rice.

In the global space, rice prices, particularly rice from Thailand and Vietnam, increased slightly in August relative the preceeding month. However, August prices remain lower compared to the same month last year and, thus, will contribute to the declining YoY inflation trend.

Rice comprises 8.9% of the country’s total Consumer Price Index (CPI), a measure of the average change over time in the prices paid for a market basket of consumer goods and services.

Fresh meat prices slightly higher, but partially offset by fish

Prices of meat were slightly higher year-on-year, with the price of beef averaging PHP 347.42 per kilo (kg) in August, pork averaging PHP 302.31/kg, and dressed chicken averaging PHP 205.03/kg. On average, prices of these selected meat cuts were up 3.9% YoY and 0.3% MoM.

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

Meanwhile, average prices of milkfish or bangus and galunggong dropped to PHP 204.33 and PHP 198.62, respectively in August, while tilapia prices slightly increased to PHP 165.85. On average, prices of these three types of fish dropped by 2.0% YoY, equivalent to a 0.3% average MoM decline.

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

Cheaper veggies but pricey fruits

Cooking staples like onion and garlic sent mixed price signals last month. Onion prices continued to decline YoY, with red onion averaging PHP 131.06 per kilo, a 0.6% decline from July and a 31.7% decline from the same period last year.

Native garlic averaged PHP 163.33 per kilo, increasing slightly by 0.3% MoM and 3.8% YoY. On the other hand, the price of imported garlic decreased by 1.5% from July but increased by 1.8% on a YoY basis. Together with select vegetables and other condiments, inflation likely decreased by 0.7% MoM and 6.9% YoY.

Select fruits, on the other hand, including banana, mango, calamansi, and papaya, increased this month at 5% MoM and 10% YoY. To name a few, the average price of lakatan banana in August was PHP 89.68 per kilo, increasing 1.6% MoM and 16.7% YoY, and the price of carabao mango averaged PHP 158.18 per kilo, up by 17.0% MoM and 1.0% YoY.

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

Oil price rollbacks took effect in August

Three oil price rollbacks took effect last month, slightly offset by a one-time price increase in the third week. This brings the average gasoline prices in Metro Manila for the month of August to PHP 65.09 and diesel prices to PHP 56.96. Year-on-year, prices have declined by 6.7% and 11.8%, respectively, equivalent to a 4.5% and 6.3% MoM decline.

According to the Department of Energy (DOE), price rollbacks were mainly due the combined effects of the softening of demand from China and an increase in planned production output of the Organization of Petroleum Exporting Countries (OPEC).

In the global space, Brent and WTI crude oil prices also declined on a MoM and a YoY basis.

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

Meralco rates up year-on-year

The Manila Electric Company (Meralco) charged PHP 11.6339 per kilowatt hour (kWh) after a minimal upward adjustment of PHP 0.0327 or 0.3% from the prior month’s rates. Year-on-year, Meralco rates increased by 6.7%.

Electricity rates make up 4.6% of the country’s CPI.

Metrobank’s take on August inflation

Considering the movements in key commodity prices, the August inflation print will likely fall within the Bangko Sentral ng Pilipinas (BSP)’s 2%-4% target range, a slowdown from the prior month’s 4.4% print. This comes especially as prices of rice (the major contributor to headline inflation) has started to slide following the implementation of lower rice tariffs.

We estimate inflation in August 2024 to dip to 3.2% YoY, the lower bound of the 3.2% – 4.0% inflation forecast of the BSP.

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MARIA KAILA BALITE is a Research Officer of the Research and Market Strategy Department, Institutional Investors Coverage Division, Financial Markets Sector, at Metrobank. She provides macroeconomic research, forecasts, and insights, as well as regular and ad hoc economic reports for both internal and external stakeholders. 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. Prior to Metrobank, she was an Economist at the Office of the Chief Economist of the Department of Finance. Outside of work, her interests include thriller movies, K-dramas, and dogs.

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 for the bank. Her academic background is in Mathematics and Economics. She loves solving puzzles and watching mystery movies.