Inflation likely slowed in Dec. — poll

An attendant holds a fuel pump nozzle at a gasoline station. — PHILIPPINE STAR/ MICHAEL VARCAS

By Luz Wendy T. Noble, Reporter

HEADLINE INFLATION probably slowed in December as fuel retailers reduced prices, although holiday demand and the impact of Typhoon Odette may have caused a faster rise in food prices, according to analysts.

A BusinessWorld poll of 13 analysts yielded a median estimate of 3.9% for the December inflation, matching the midpoint of the 3.5% to 4.3% forecast given by the Bangko Sentral ng Pilipinas (BSP) last week. 

If realized, inflation will be within the 2-4% target by the BSP. The median estimate is slower than the 4.2% in November but still quicker compared with the 3.5% in December 2020.

The Philippine Statistics Authority (PSA) will release the consumer price index (CPI) data for December on Wednesday. 

The December CPI will be the last one that will have 2012 as its base year. For the January report, the PSA will adopt 2018 as its base year, as part of the agency’s move to rebase price indices every six years.   

The oil price rollback is a crucial factor that may have tamed inflation last month, said University of Asia and the Pacific economist Victor A. Abola.

“The downside [risk to inflation] comes from the sharp fall in fuel prices, especially considering that local petroleum companies adjust pump prices around two weeks after crude oil price movements in international markets,” Mr. Abola said.

Data from the Department of Energy (DoE) showed that gasoline, diesel, and kerosene prices decreased by about P0.50, P1.40, and P1.65 per liter, respectively during the month.

In the aftermath of Typhoon Odette, a mandatory price freeze was implemented for kerosene in areas under a state of calamity. Some oil companies have also decided to suspend price hikes for gasoline and diesel in typhoon-hit areas in Visayas and Mindanao.

“I’m expecting a continued slowdown in inflation in December, to 3.8%, largely due to the favorable base effects still in play in terms of food inflation,” Pantheon Macroeconomics Senior Economist Miguel Chanco said.

Food inflation in December 2020 reached 4.8%. It stood at 3.9% in November 2021.

The African Swine Fever outbreak has been blamed for low supply that drove up prices of pork products since the latter months of 2020. To address this, the government last year lowered the tariffs and expanded the minimum access volume quota for pork imports.

On the other hand, seasonal holiday demand in December may have caused faster inflation, De La Salle University economist Mitzie Irene P. Conchada said.

“With the Christmas season, prices could have hiked up a bit especially food items and other basic necessities,” she said.

The impact of Typhoon Odette to supply may have also caused quicker food price inflation last month, said Alvin Joseph A. Arogo, vice-president and head of equity research division at Philippine National Bank.

“Due to [the] surprising threat of typhoon Odette, the risk is tilted to the upside as the ensuring agricultural damage and logistics challenges may have increased food prices more than our baseline expectation,” Mr. Arogo said.

The typhoon has caused P9 billion so far in crop damage, based on data from the Department of Agriculture released on Dec. 31.

Headline inflation exceeded the Bangko Sentral ng Pilipinas (BSP) target in 2021, except in July when it stood at 4%.

Year to date, inflation is at 4.5%, still beyond the central bank’s 4.4% forecast for the year and much faster than the 2.6% average in 2020.

The central bank expects inflation to ease to within target at 3.4% and 3.2% by 2022 and 2023, respectively.

“Favorable base effects may help offset upside risks into 2022 and should give the Bangko Sentral ng Pilipinas some further leeway to remain accommodative for the first half of 2022,” Security Bank Corp. Chief Economist Robert Dan J. Roces said.

Pantheon’s Mr. Chanco said the central bank is expected to continue to focus on supporting economic rebound.

“I still highly doubt that they will move anytime soon. We expect them to remain on pause for most of [2022], simply because we expect the recovery to disappoint,” he said.

In the third quarter, the economy rose by 7.1% year on year and 3.8% quarter on quarter. Year-to-date growth stood at 4.9%, which is already near the upwardly revised 5-5.5% growth target by the government this year.

However, analysts have warned that the widespread damage arising from Typhoon Odette may dampen fourth-quarter growth.

The central bank did not adjust policy rates in 2021 after cutting rates to record lows by a total of 200 basis points in 2020 to support the economy in the early stage of the pandemic.

While some central banks including the US Federal Reserve have already started or signaled normalization of monetary policy, BSP Governor Benjamin E. Diokno has said they will retain an accommodative policy to make recovery more sustainable. 

The Monetary Board will have its first policy review this year on Feb. 17.