February inflation at 3%

PHILIPPINES - In Brief 04 Mar 2022 by Romeo Bernardo

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The Philippine Statistics Agency (PSA) reported today that the headline inflation rate averaged 3% in February, the midpoint of the BSP’s 2-4% inflation target.The relatively benign inflation outturn, despite the 13.5% yoy increase in electricity prices and 6% yoy rise in local fuel prices during the month, was mainly due to the decline in overall food costs.In turn, the latter is due to improved supplies of typhoon-affected items, particularly fish and vegetables, especially following the agriculture department’s approval of increased fish importation. Chart 1: Contribution to inflation, yoyChart 2: Contribution to inflation, mom Notwithstanding the moderate February inflation print, inflation risks are high in light of surging global commodity prices and the many uncertainties associated with Russia’s invasion of Ukraine, including the impact of western sanctions on Russia. The two countries are major players in global trade of oil and gas as well as wheat and other commodities.[1] We are now forecasting full year inflation at 4.5%, above the BSP’s target. Some of the more evident price pressures include: Imported oil and oil products, the costs of which are directly passed on to consumers. Price adjustments are done weekly based on the past week’s average cost and have continued through the start of March. Imported fuel used by power plants that are allowed to pass on the costs. The price of coal is particularly important as it is used by plants that generate 60% of the country’s power needs. The price of natural gas from local Malampaya plant which fuels 20 percent of total generation is anchored on coal. Price adjustments for electricity are done with a longer lag...