In a surprising turn of events, the inflation rate in the Philippines accelerated in August, marking the first increase in seven months. This unexpected rise was largely attributed to a significant increase in food and transportation costs, forcing the central bank to keep up its vigilant approach. The consumer price index (CPI) rose by 5.3% year-on-year in August, surpassing the 4.7% prediction by economists in a Reuters poll. This increase, while matching the previous month’s pace, falls within the central bank’s projection of 4.8% to 5.6% for that month.
The inflation data released on Tuesday reaffirmed the central bank’s stance that the country is still grappling with inflation issues. This has sparked speculation that the bank might consider raising its policy rate, which it has held steady at 6.25% in its last three meetings. Following the disclosure of the data, the Bangko Sentral ng Pilipinas (BSP) stated that it "stands ready to adjust the monetary policy stance as necessary" to curtail the spread of price pressures and the emergence of additional second-order effects. This comes as the year-to-date inflation rate reached 6.6%, significantly exceeding the central bank’s comfort range of 2%-4%.
Philippine Inflation Surges Amid Rising Food and Transport Costs
In a surprising twist, Philippine inflation escalated for the first time in seven months in August, largely propelled by a surge in food and transport expenses. This development puts increased pressure on the central bank to maintain its vigilant approach.
Central Bank Remains on High Alert
The consumer price index (CPI) witnessed a 5.3% year-on-year surge in August, surpassing the 4.7% prediction by economists in a Reuters poll. The rise matched the pace of the previous month and fell within the central bank’s 4.8% to 5.6% forecast for August.
However, when energy costs are excluded, core inflation dipped to 6.1% in August, down from 6.7% the previous month. The latest data reaffirmed the central bank’s view that the country is still not free from inflationary pressures, hinting at the possibility of a policy rate hike after holding steady at 6.25% at its last three meetings.
In response to the unfolding situation, the Bangko Sentral ng Pilipinas (BSP) asserted that it stands ready to make necessary adjustments to the monetary policy stance to prevent the expansion of price pressures and the emergence of additional second order effects.
Year-to-Date Inflation Exceeds Comfort Range
The inflation surge in August has led to a year-to-date inflation rate of 6.6%, significantly beyond the central bank’s comfort range of 2% to 4%. According to ING economist Nicholas Mapa, the trajectory of inflation in the coming months will be determined by rice, transport, and electricity costs. While he anticipates the BSP to hold steady, the institution could consider a rate hike if this becomes a trend.
Food Prices: A Key Concern
To keep food prices under control, the Philippines has imposed price ceilings on rice, which it asserts will remain in effect as long as the government deems necessary. Food accounts for 35% of the CPI.
In light of the unexpected rise in August consumer prices, Economic Planning Secretary Arsenio Balisacan suggested that the Philippines, one of the world’s largest rice importers, may lower tariffs on the grain to help reduce domestic costs.
Takeaways
The surge in inflation in the Philippines underscores the challenges emerging economies face in balancing growth with price stability. The central bank’s readiness to adjust its monetary policy shows its commitment to tackling inflation. However, given the significant contribution of food, specifically rice, to the CPI, the government’s move to control rice prices and consider lowering tariffs could be pivotal in managing inflation in the coming months. The situation calls for close monitoring of inflation trends and swift, calculated responses to prevent any second order effects.
