Inflation accelerated to 1.1 percent in November, the biggest rise in five months, in line with the central bank’s view that a slowdown in consumer price growth had bottomed out following a run of record lows.
An analyst said the result, a sharp increase from October’s 0.4 percent but still below the 3.7 percent recorded in November last year, was unlikely to prompt the Monetary Board to adjust policy rates next week.
It fell within the Bangko Sentral ng Pilipinas’ (BSP) 0.4 percent to 1.2 percent forecast but exceeded the 0.6 percent to 0.9 percent range in a poll of private analysts. November inflation also topped the Finance department’s 0.8 percent projection.
Core inflation, which excludes food and energy prices, increased to 1.8 percent from 1.5 percent in October but was still lower than the 2.7 percent recorded a year earlier.
Year-to-date, the rise in consumer prices averaged 1.4 percent, below the central bank’s target of 2 percent to 4 percent. Core inflation averaged 2 percent during the period.
“The growth was primarily due to the higher annual rate in the heavily weighted food and non-alcoholic beverages index as it advanced by 1.7 percent from a previous month’s growth of 0.7 percent,” the Philippine Statistics Authority (PSA) said on Friday.
Faster annual increments were also registered in the indices of alcoholic beverages and tobacco; clothing and footwear; furnishing, household equipment and routine maintenance of the house; health; transport; recreation and culture; and restaurant and miscellaneous goods and services, the PSA added.
“As anticipated, inflation had bottomed out in October with credit and domestic liquidity growth rates also stabilizing, these signal that our stance of policy right now is appropriate,” central bank Governor Amando Tetangco Jr. said in a text message to reporters.
That said, Tetangco stressed that monetary authorities would remain watchful of developments, particularly actions by advanced economies.
Citing the European Central Bank’s decision to cut rates a bit shallower than anticipated, he said: “We will see how the balance of this, [a]possible US lift-off this month and further moves from Chinese authorities would impact on domestic price and growth dynamics.”
An analyst from United Kingdom-based investment bank Barclays said the central bank would continue to stay on the sidelines and not adjust interest rates during its final policy meeting for the year.
“Even with the pick-up in inflation, BSP appears comfortable with its policy stance, emphasizing that growth and inflation risks stem largely from poor weather and the uncertain global backdrop,” Barclays economist Rahul Bajoria said.
The bank expects inflation to average 1.4 percent this year, rising to 2.4 percent next year.
“Following today’s (Friday’s) print, we remain comfortable with our forecasts, as they incorporate a manageable pace of core inflation and a modest increase in energy costs in 2016. We continue to believe the medium-term risks to inflation center on El Niño and its potential impact on agricultural prices,” Bajoria said.
ING Bank senior economist Joey Cuyegkeng, meanwhile, said the upside inflation surprise was likely a result of both the El Niño and the Typhoon Koppu’s impact on food and production prices.
He noted that food and non-alcoholic beverage inflation accelerated to 1.7 percent in November, 1 percentage point higher than the October rate of 0.7 percent.
Higher core inflation was said to be due to higher transport costs and price hikes for miscellaneous items including meals outside the home—indirectly affected by the impact of bad weather —and more expensive alcoholic beverages and tobacco items, clothing and health products.
This month could see a continued uptick, Cuyugkeng added.
“But if supply chains have been restored from the food basket of Luzon to the market, then
food inflation is likely to ease and likely see a steady or slightly moderate inflation rate for December,” he qualified.
The National Economic and Development Authority (NEDA), meanwhile, said inflation was still expected to settle below the full-year target.
“This will largely be influenced by the slump in global petroleum prices, along with other favorable supply-side factors such as the sluggish domestic retail prices of corn, oil and rice,” Deputy Director General Rolando Tungpalan said in a statement.
To manage risks of higher inflation, he called for the faster implementation of the Roadmap for Addressing the Impact of El Niño to soften the weather phenomenon’s adverse effects on food prices and utility rates.
“The government should err on the high side in determining food import requirements in anticipation of El Niño to avoid food price spikes, which would be very detrimental to the poor who spend over 60 percent of their budget on food,” Tungpalan said.
He also pointed to an unstable energy situation in Mindanao, which is largely dependent on hydropower for its electricity needs.
“There is a need to reinforce measures to expand investments in the rehabilitation program for existing hydropower plants so as to increase their generation capacities,” the NEDA official said.
“The government should also start preparing for the possible impact of La Nina, which could be a strong one as well. The current drier than normal conditions must be taken advantage of to build flood mitigation infrastructures,” he added.