MANILA, Philippines — Inflation unexpectedly slowed in March from a month ago helped by a broad slowdown in food prices that nevertheless did not include meat costs driving prices to new highs this year.
The result was a more cautious tone from the Bangko Sentral ng Pilipinas (BSP) which responded to the 4.5% year-on-year print, down from February’s 4.7%, by saying the trend still points to inflation falling above its 2-4% target for the year. For the first quarter, headline inflation settled at 4.5%.
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“The Monetary Board is of the view that prevailing monetary policy settings remain appropriate to support the Government’s broader efforts to facilitate the recovery of the economy,” BSP Governor Benjamin Diokno said in a Viber message to reporters.
What’s new
Slower inflation emanated largely from heavily weighted food products. Overall, food and non-alcoholic beverages saw inflation down to 5.8% year-on-year from February’s 6.7%. When broken down, prices of vegetables, fruits and fish lost pace, helping bring down inflation.
But the decline was not so much, precisely because pork products driving prices for the past 3 months picked up pace to 20.9% from 20.7%. That translated to P329 per kilo of pure meat in Metro Manila, up from P323 a month ago despite a prevailing price cap. Outside that area, the same dipped to P312 per kilo from P317.
On top of that, beef and chicken prices were also showing some increasing pressure, partly fueled by consumer shift in protein source. Transport costs also contributed with tricycle fares up 47.5% year-on-year, and that for jeepneys 6.3%. Fuel rates jumped 11.9% annually.
Why this matters
An easing in inflation is very welcome to an economy that just put over 32% of its annual economic output back in lockdown. Metro Manila and four key nearby urban areas are under enhanced community quarantine, the tightest lockdown there is, and many lost their livelihood because of establishments not allowed to operate.
That said, any easing from here on can be more a bad than good news. If last year’s lockdowns are of any indication, crippled consumer demand during these quarantines tends to slow down prices. That is not healthy, since it means suppliers are not able to sell their goods, preventing more production that helps employ people and boost productivity.
More than that, a 60-day price freeze on pork products in Metro Manila is bound to expire on April 12 and can no longer be extended. That may fuel meat prices to surge, although National Statistician Claire Dennis Mapa said the clear impact will only be obvious in the April inflation report.
What analysts say
Ruben Carlo Asuncion, chief economist at UnionBank of the Philippines, therefore assessed: “We saw last year how demand has been dampened due to the pandemic…If we are going to factor in the two-week lockdown, we may see a slower April print.”
Sanjay Mathur, ANZ chief economist, however believed otherwise. “The lockdown does impact impact public transportation and we have noticed that private transportation costs do tend to rise in such a situation,” he said in a separate email.
Other highlights
- Core inflation, which strips out volatile food and energy prices, was steady at 3.5% in March.
- Overall inflation in the Metro and outside that area slowed, but there was a faster deceleration in the capital region.