Inflation steadies in February despite high oil prices

MANILA, Philippines (Update 1, 12:15 p.m.) — Consumer price growth in February was unchanged from the preceding month despite a steady rise in oil prices, with one analyst saying the recent changes in computing inflation masked the building price pressures that Filipinos actually felt on the ground.

Inflation, as measured by the Consumer Price Index (CPI), quickened 3% year-on-year in February, unchanged from the previous month, the Philippine Statistics Authority reported Friday.

The latest reading was within the Bangko Sentral ng Pilipinas’ 2.8-3.6% forecast for the month. At the same time, the figure also stayed within the BSP’s 2-4% target range, bringing good news to a government trying to tame prices so it can keep nurturing the economy’s nascent recovery from the pandemic.

But Nicholas Antonio Mapa, senior economist at ING Bank in Manila, believes the headline CPI in February did not capture the upward price pressures that Filipinos are feeling when they go to the market or fill up their gas tank. When the PSA data is broken down, Mapa said figures would show “we have started to see the impact of higher energy prices surface already for utilities and transport” as a combo of supply crunch and Russia’s invasion of Ukraine drive up global oil prices.

What’s improving the price optics was the recent tweaks in the way state statisticians compute inflation, Mapa explained. Starting January, the PSA changed the base year it uses for the CPI to 2018, when a weak peso and rice shortage sent inflation soaring to multi-year highs. A rebasing is done periodically to capture changes in households’ consumption patterns over time.

“Food saw slower inflation due largely to rice inflation, which benefitted from the base year shift to 2018 (when rice inflation was surging),” Mapa said.

“So on paper, food inflation looks good but it by no means reflects the price increases on the ground,” he added.

At a press conference, National statistician Claire Dennis Mapa, not related to ING Bank’s Mapa, explained that issues in the supply chain improved last month, which kept food prices from moving up too much. But he said that while it could take months for rallying fuel costs to feed through food prices, the effects of oil price hikes have been “felt” already.

Data from the PSA showed housing, water, electricity, gas, and other fuels rose 4.8% on-year in February while transport fares leapt 8.8%.

“When oil prices increase in the world market, the effects reflect quickly in the transport basket. For other groups such as food, it’s dependent on other factors such as current supply,” the PSA chief said.

For Sanjay Mathur, lead economist for Southeast Asia and India at ANZ Research, the benign inflation last month will be temporary “given the recent jump in food prices i.e. food prices will not be able to offset higher oil prices.”

That said, the Duterte administration is indeed anticipating price hikes.

“Prices of commodities, such as oil, wheat, and corn, are going up as demand outpaces supply. That is why we need to proactively manage the impact on the people,” Socioeconomic Planning Secretary Karl Kendrick Chua said, adding that the government will distribute “targeted” subsidies to affected sectors.

Meanwhile, the BSP, which has kept borrowing costs at record-low to help the economy recover, said it is monitoring the impact of geopolitical tensions that have been stoking oil price hikes in the past weeks.

“Under these circumstances, the BSP will continue to closely monitor the emerging risks to the outlook for inflation and remain vigilant against possible second-round effects from supply-side pressures or any shifts in the public’s inflation expectations,” the central bank said.

“The BSP supports the implementation of non-monetary measures by the national government to help mitigate the impact of higher oil prices and avoid the broadening of price pressures,” it added.