Headline inflation in February accelerated to its fastest pace in more than two years at 3.3 percent on the back of higher food, energy and transport costs, government data showed on Tuesday.
The new rate is the highest since November 2014, when inflation registered 3.7 percent.
The Bangko Sentral ng Pilipinas (BSP) said the year-to-date inflation rate is still within its 2 percent to 4 percent target for the year.
Analysts, however, predict headline and core inflation will continue to gather momentum and impact the monetary policy setting of the central bank this year.
Official data from the Philippine Statistics Authority showed the consumer price index (CPI) in February showed a significant jump from 0.9 percent a year earlier and from 2.7 percent in January.
The rise in CPI settled within the 3.1 percent to 3.9 percent range that had been forecast for the month by the BSP.
It also stood within the 2.7 percent to 3.4 percent range estimated for the month by private analysts polled earlier by The Manila Times.
Core inflation—which excludes food and energy prices – rose to 2.7 percent from 2.5 percent in the preceding month, and from 1.5 percent a year earlier.
Inflation for the first two months of the year averaged 3 percent, or at the mid-point of the 2 percent to 4 percent target range of the BSP for the year.
All prices up
The National Economic and Development Authority (NEDA) traced the uptick in February to upward price adjustments in both food and non-food items.
Faster price increases in rice, meat, fish, and vegetables pushed up food inflation to 4.3 percent in February 2017 from last month’s 3.6 percent, it said in a statement following the release of the official CPI data.
For meat products, the NEDA said the country’s temporary ban on poultry imports from South Korea, Germany, France, Netherlands, Czech Republic, and Kuwait in response to the Avian Flu outbreak may have contributed to the limited supply.
The increase in rice prices may also be attributed to lower rice stock inventories, which fell 17.9 percent in January from the preceding month, due to the contraction in palay production in the fourth quarter of 2016, it said.
In addition, the agency said price increases in housing, water, electricity, gas, and other fuels drove the non-food subgroup inflation to 2.5 percent in February 2017 from the preceding month’s 2 percent.
All the Association of Southeast Asian Nations (Asean)-5 economies, except Thailand, experienced faster inflation in the first two months of 2017, which coincides with the rise in oil prices in the international market.
BSP hints at steady rates
“Inflation for February tipped to 3.3 percent due to higher annual increases in the prices of food and non-alcoholic beverages,” BSP Governor Amando Tetangco Jr. told reporters in a text message.
February inflation puts the average for the first two months of the year at 3 percent, right at the middle of the government’s target range of 2 percent to 4 percent, and confirms BSP’s expectations that the monthly path of inflation will move up, and that the average for the year will be within target, Tetangco said.
“As the uptick is in line with forecast, there appears to be no immediate impetus to adjust the stance of monetary policy, but we will remain data-dependent in our assessment and forthcoming decisions,” he added.
After lowering the reverse repurchase rate to 3 percent from 4 percent on May 16 in the runup to adopting an interest rate corridor system on June 3 last year, the central bank has kept the key policy rate unchanged at its first meeting for the year.
The Monetary Board (MB) also kept the corresponding rates for overnight lending and deposit facilities at 3.5 percent and 2.5 percent, respectively. The reserve requirement ratio was also kept steady at 20 percent.
The MB is set to meet for the second time this year on March 23.
Tetangco said the BSP is closely monitoring areas of possible price pressures, including petitions for utility and fare rate adjustments, the impact of the Malampaya shutdown, the near-term impact of the Comprehensive Tax Reform Package, as well market reactions to the Federal Reserve and its assessment of the United States economy.
“On the downside, we are looking at the growth in the rest of the global economy, which continues to be tentative,” Tetangco added.
The socio-economic planning body, the NEDA, said risks to the inflation outlook appear to be tilted to the upside.
“This could drive inflation toward the higher end of the target,” said Socioeconomic Planning Secretary Ernesto Pernia.
Risks to inflation from the external side include increases in the price of oil and the depreciation of peso, said Pernia, who is also NEDA Director General.
Pernia also raised concern over the effect of the National Food Authority’s memorandum that allowed the entry of rice imports under the minimum access volume program only from October 2016 until February 28, 2017.
“This will tighten the rice supply, which translates to higher food prices,” he said.
Forecast: Firm trend
ING Bank Manila and ANZ Research see inflation this year firming toward the upper end of the BSP’s 2 percent to 4 percent forecast range.
ING Bank Manila expects inflation to average 3.4 percent this year and 3.3 percent in 2018.
“Agriculture production should recover this quarter and in the second quarter and should be able to provide some offsetting price effect. However, transport fares are on the rise while other consumer good prices are expected to increase to reflect higher import costs,” ING Bank Manila senior economist Joey Cuyegkeng said.
He also said uncertainty over the timing of the passage of the first package of the tax reform program of the government also creates some concern as “the inflationary impact of the first package has been moderated with a staggered implementation of the higher excise tax over three years.”
The knock-on effects on costs of freight, as well as transport fares, are likely to keep inflation on an uptrend, he added.
Focusing on core inflation, ANZ Research said core inflation is likely to continue rising as domestic demand is also likely to remain firm.
“Consumer expectations surveys for the next quarter and the next 12 months suggest that household spending will remain robust. Combined with the renewed focus of the government on infrastructure spending, aggregate demand should stay firm, implying that core inflation is likely to continue rising,” ANZ Research economist Eugenia Victorino said.
Headline inflation should, however, wane from the second quarter of 2017 as the impact of rising commodity prices and unfavorable base effects wear off, she added.
Overall, she forecast inflation in 2017 will remain in the upper half of the central bank’s 2 percent to 4 percent target range.
“Accordingly, we expect that the BSP will start tightening its policy in the third quarter of 2017. We are pencilling in cumulative tightening of 50 basis points over the course of 2017,” she said.