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Consumer prices rose the fastest for the fourth month in a row to a two-year high in January after food and transportation costs soared, according to the local statistics agency.
The Philippine central bank in a separate statement said inflation could be better mitigated through non-monetary policies.
Headline inflation accelerated to 4.2% last month, faster than 3.5% in December and 2.9% a year earlier, the Philippine Statistics Authority (PSA) said in a statement on Friday. It was also the fastest since 4.4% in January 2019.
January inflation was higher than the 3.6% median estimate in a BusinessWorld survey of 16 economists last week.
It also exceeded the 3.3-4.1% estimate for the month and the 2-4% annual target of Bangko Sentral ng Pilipinas (BSP).
“The projected upward trend in inflation is considered temporary,” said BSP Governor Benjamin E. Diokno.
“The sources of inflationary pressures in the short term are supply-side shocks by nature that should not require a monetary policy response unless they generate more second-round effects,” he added.
Instead, the government should ease domestic supply constraints, Diokno said, adding that average inflation would likely be within the central bank’s 2-4% target.
The statistics agency attributed the fastest increase to heavily weighted food and non-alcoholic beverages, whose prices rose 6.2% in January from 4.8% the previous month.
Other important contributors were transportation costs, which increased 8.6%, and higher prices for restaurants and miscellaneous goods and services, which grew 3%.
Inflation was attenuated by the lower increase in the prices of alcoholic beverages and tobacco, which fell to 11.7% from 12.2% in December; furniture, household goods and routine home maintenance, which fell to 2.9% from 3.3%; and recreation and culture, which slowed to 0.7% from 0.6%.
“Our priority at this time is to ensure that the food supply is adequate so that households affected by COVID-19 and quarantines are not doubly affected by the increase in food prices,” said the Acting Secretary for Socioeconomic Planning. Karl Kendrick T. Chua in a statement. .
“In the meantime, allowing more importation of key agricultural products, while adhering to strict security protocols to prevent the entry of contaminated products, will help increase supply and control inflation,” he added.
Core inflation, which excludes volatile food and fuel prices, accelerated to 3.4% last month from 3.3% in December and January 2020.
Food inflation accelerated to 6.6% from 4.9% the previous month, driven by double-digit increases in meat and vegetable prices.
January inflation for meat was 17.1% from 10% in December, while prices for vegetables increased 21.2% from 19.7% in December.
Meanwhile, tricycles, jeepney and bus fares increased by 46.7%, 6.4% and 4.5, which raised transportation costs. On the other hand, fuel prices fell 9.3% from 10.6% in December.
Inflation in the National Capital Region (NCR) accelerated to 4.3% last month from 3.2% in December and 2.7% a year earlier.
Inflation for households with the lowest 30% income reached 4.9%, faster than 4.3% in December and 2.3% a year ago. This was the highest in two years, or from 5.2% in January 2019.
NO RATE CUT
National Statistician Claire Dennis S. Map said in an online news report that the spike in inflation in the capital region and for the poor was mainly due to faster increases in food prices, especially fish, meat , vegetables and fruits.
Nicholas Antonio T. Mapa, senior economist at ING Bank NV Manila, attributed the continued rise in food prices to the typhoons that devastated parts of Luzon in the last quarter, as well as the spread of African swine fever.
“This was the first gap since 2018, when inflation rose to a high of 6.7% also driven by rising food prices and higher transportation costs,” he said in a note.
“We expect inflation to remain high in the coming months with base effects and persistent pressure on the cost side to force the stock near or above the 4% level,” he added.
The central bank is unlikely to cut key interest rates at its meeting next week despite faster inflation, Mapa said.
“We expect BSP to refrain from adjusting policy in the short term as Diokno provides monetary support to the economic recovery, and the monetary authorities hope to bridge this latest gap until supply conditions normalize in the coming months,” he added.
Inflation is likely to continue to rise as supply problems are addressed and world oil prices rise, said Alex Holmes, Capital Economics economist for Asia.
He said this would force the BSP to keep policy rates unchanged in the short term, but the easing cycle could continue towards the end of the year to support economic recovery.
“We still expect more rate cuts later in the year,” Holmes said in a note. “The increase in inflation should be temporary. What’s more, the economy still needs more support ”, he added.
“The inability to contain the virus, the economic scars of the pandemic and lackluster fiscal support mean that the recovery will continue to be disappointing in the coming quarters,” Holmes said.
Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said any second-round inflation effects in the coming months could trigger a rate hike.
“A new historical minimum local policy rate of 2% is now unusually below the inflation rate, which is currently higher at 4.2%, resulting in negative net interest rates, causing any further cuts in policy rates are more challenging right now, “he said.
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