Philippine headline inflation inched up to 3.4 percent in March, the highest in more than two years, with official data showing higher prices of electricity, gas and other fuels driving the index past the first two-year record of 3.3 percent hit in February.
The consumer price index (CPI) in March jumped from 1.1 percent a year earlier.
The March 2017 rate is the highest since November 2014, when inflation registered 3.7 percent.
Seeing the figures tracking the expected upward path, the central bank affirmed its stance to keep its monetary policy for now.
Some analysts, on the other hand, expect a possible tightening cycle starting the third quarter of the year.
The new rate matched the average of forecasts for March made by seven analysts polled by The Manila Times, based on a range of 3.1 percent to 3.6 percent.
But it came out lower than the Department of Finance’s estimate of 3.6 percent for the month, which was based on the expected upward push on prices of food, power and fuel prices caused by the peso’s weakness.
What drove prices up
Electricity, gas and other fuel prices jumped 9.3 percent year-on-year.
The National Economic and Development Authority (NEDA) traced the sharp increase in fuel prices partly to a 20-day maintenance shutdown in the Malampaya Gas field, which shut down three power plants—Ilijan, Sta. Rita, and San Lorenzo during the period. The shift to liquid fuel from natural gas drove up household electricity rates to P9.67 per kilowatt-hour (kWh).
The NEDA said that pushed inflation in the non-food group up to 2.8 percent in March from 2.5 percent in February. The comparative year-earlier non-food group inflation was almost nil at 0.4 percent.
Other sub-commodity groups that pushed non-food inflation up were furnishing, household equipment and routine house maintenance costs at 2.5 percent from 2.3 percent, and health at 2.8 percent from 2.6 percent.
Meanwhile, inflation in the food group decelerated to 4.2 percent in March 2017 from 4.3 percent in the previous month. The NEDA said this was due to slower price adjustments in fish, fruits, vegetables, sugar, jam, honey, chocolate, and confectionery, and other food products.
Inflation in rice and meat accelerated to 2.3 percent and 3.2 percent, respectively. Both could be due to importation constraints imposed by the government, it said.
Excluding energy and food prices, core inflation in March rose only slightly to 2.9 percent from 2.7 percent the preceding month, and from 1.5 percent a year earlier.
For the first quarter of 2017, the average inflation rate for the first quarter of 2017 reached 3.2 percent, standing slightly above the mid-point of the 2 percent to 4 percent target range set by the BSP for the year.
The NEDA said the first three months’ average inflation rate was driven higher by higher food and oil prices, especially given a generally low base in 2016.
Runs as expected
“As we have said, our runs show that the path of monthly inflation shows upticks until about the third quarter of this year before slowly decelerating to average within the target range,” Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. told reporters in a text message following the release of the official March inflation rate data.
While reiterating there is no immediate need to tweak BSP’s policy rate settings, Tetangco stressed that the monetary authority is watching the international oil supply picture, developments in the Comprehensive Tax Reform Program in Congress and geopolitical developments, among others.
“We will make adjustments if and when needed,” he said.
Since lowering the reverse repurchase rate to 3 percent from 4 percent in the runup to adopting an interest rate corridor system on June 3, 2016, the central bank has kept the key policy rate unchanged, including the time it held its second meeting for this year (which was when? say it here).
The Monetary Board (MB) has kept the corresponding rates for overnight lending and deposit facilities steady at 3.5 percent and 2.5 percent, respectively. The reserve requirement ratio was also left unchanged at 20 percent.
Upward risk remains
The NEDA, the socio-economic planning body, said upward risks to inflation remain, but the overall outlook continues to be within the government’s 2 percent to 4 percent target range for this year and 2018.
“Higher electricity rates are expected to persist in the next two months as the Energy Regulation Commission (ERC) will spread the additional cost from the use of liquid fuel, which is more expensive than natural gas, until May 2017,” Socioeconomic Planning Secretary Ernesto Pernia, who is also NEDA director general, said.
The likely recovery of international and petroleum prices in 2017 may keep consumer prices afloat, he added.
Possible adjustments in transportation fares and electricity rates in the coming months are also expected to exert upward pressure on prices.
Pernia also sees the continued depreciation of the Philippine peso against the US dollar possibly exerting “upward push on the cost of basic commodities and services.”
“The recent upward trend in inflation needs to be closely monitored. The government needs to implement timely mitigating measures to ensure that prices remain stable,” he said.
A factor that might mitigate the inflationary pressures could be the removal of quantitative restrictions on rice importation, and the timely augmentation of supplies, he added.