Prices soar to 17-year high

MANILA, Philippines – Inflation hit another near-17-year high of 12.5 percent in August as prices of basic commodities continued to accelerate last month.

But monetary officials said there were signs of moderating price increases in certain commodities, which means prices might soften.

The National Statistics Office (NSO) announced yesterday that the national average inflation rose 12.5 percent in August, up from 2.4 percent last year and 12.3 percent in July.

The NSO said the annual inflation rates were higher in all commodity groups, except in food, beverages and tobacco (FBT) index which was unchanged.

Excluding selected food and energy items, core inflation rose to 7 percent in August from 6.3 percent in July.

The August inflation fell within the projected inflation rate of the Bangko Sentral ng Pilipinas and BSP Governor Amando Tetangco Jr. said this was an indication of moderation in the rate of increases in commodity prices.

The BSP had projected inflation to range between 11.8 percent and 12.6 percent, adding that the typhoon season was causing the usual disruption in the supply chain that would lead to artificially high prices of commodities in certain areas.

Tetangco noted that there were smaller price increases in certain commodities and these were the main causes of moderation.

The NSO reported that the annual inflation rate in the National Capital Region (NCR) rose to 8.7 percent in August from 8.6 percent in July due to upward movements in the rates of clothing, housing and repairs (H&R) and miscellaneous items.

Outside Metro Manila, the inflation rate moved to 14.2 percent in August from 13.9 percent in July due to the acceleration in inflation rates in all commodity groups, except in FBT.

“These developments are positive for the inflation outlook and the BSP will watch these closely to see if the slowdown would continue and be more generalized,” Tetangco said.

He added that the biggest risk was still the possibility that the downtrend in oil prices could reverse and start going up again, posing further threat to future inflation.

Monetary authorities decided last month on a 25-point hike in its key policy rates, saying that further tightening was due to the persistent volatility of oil prices.

With the recent hike, key policy rates have already gone up 100 basis points so far this year and the BSP has started to indicate that it might be gaining some room to end the tightening cycle, especially since the economy was slowing down more significantly than expected.

Tetangco said over the weekend that monetary policy still needed to be “appropriately tight” to stabilize inflation to within the target range over the policy horizon, and help manage inflation expectations.

With indications that the economy was weaker and slowing down sharper than expected, monetary tightening – usually through calibrated increases in interest rates – would no longer be as urgently necessary.

But Tetangco said inflation management was the BSP’s top priority since stable prices were more supportive of long-term growth and the present growth rate remained “respectable.”

The NSO’s report indicated that all the commodity groups continued to record higher annual price hikes in August, except for FBT whose annual inflation was slower at 17.2 percent from 17.8 percent.

Annual inflation rate for clothing moved up to 4.6 percent in August from 4.5 percent in July; H&R, 5 percent from 4.6 percent; FLW (food, light and water), 7.2 percent from 5.5 percent; services, 13.5 percent from 12.5 percent; and miscellaneous items, 3.3 percent from 3 percent.

At the national level, the NSO said the annual inflation rate for food alone slowed down to 18.1 percent in August from 18.6 percent in July.

The NSO said slower annual price gains were noticed in the index of rice, 45.1 percent in August from 50 percent in July; corn, 31.6 percent from 40.6 percent; and meat, 10.6 percent from 11.0 percent.

Higher annual price trends were however seen in cereal preparations, 18.8 percent from 17.6 percent; dairy products, 13.8 percent from 13.1 percent; eggs, 6.2 percent from 6 percent; fish, 9.4 percent from 8.5 percent; fruits and vegetables, 16.1 percent from 13.8 percent; and miscellaneous foods, 9.1 percent from 8.9 percent.

“The central bank will watch this closely to see if the slowdown would continue and be more generalized. A reversal in the downtrend of oil prices remains the biggest risk to the inflation outlook,” Tetangco said.

The central bank had earlier predicted consumer price growth would peak in September or October.

The central bank will have September inflation data before its next rate decision on Oct. 9 and many analysts said the monetary authority may raise rates for a fourth and final time next month to bolster the weakening peso and because domestic inflationary pressures are still prevalent.

“I think we may see another 25 basis point hike in October,” said Simon Wong, economist with Standard Chartered Bank. “After October, the central bank will put rates on hold.”

“There is a very tight relationship between inflation in the Philippines and energy and commodity prices,” said Sin Beng Ong, economist with JP Morgan. “So when you see oil crash like that, that means inflationary pressures are actually a lot lower going forward.”