Inflation continues to rise

PHILIPPINES - In Brief 05 Jan 2023 by Romeo Bernardo

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The headline inflation rate inched up from 8% in November to 8.1% in December, below the median analysts’ forecast of 8.3%. Month-on-month (mom) inflation rose 0.3%, weaker than the 0.9% mom increase in the prior two months. The better-than-expected outturn may be traced mainly to the decline in oil prices and thus, transport costs, that helped reduce the impact of still rising food and electricity prices. Food prices rose 1.1% mom with vegetable and meat prices the largest contributors, while “electricity, gas and other fuels” increased 1.5% mom. December saw a shortage in onion supply that led government to temporarily set a below-market “suggested retail price” for the basic food item as well as the suspension of a power supply agreement between Metro Manila’s main electricity distributor and one of its suppliers that forced the former to source higher-priced emergency supply from alternative sources, including the spot market. The risks to inflation remain tilted to the upside, mainly related to food and electricity supply as well as possible further wage and transport fare adjustments. While the inflation rate will remain elevated for most of 2023, we share the BSP outlook of a likely downtrend in the headline rate in the coming months and a return within the 2-4% target later in the year. We expect the inflation rate to average 4.8% this year. The recent extension of reduced tariff rates for key commodities (swine meat, corn, rice and coal) by Executive Order 10 will also help manage inflation expectations. The risks to domestic inflation, coupled with the US Fed’s continuing hawkish tone, will keep the BSP watchful and more likely in the near term to follow the ...