Philippine inflation accelerates in May as dry weather pushes up food prices

06, Jun. 2019

MANILA, NNA – Inflation in the Philippines accelerated to an above-forecast 3.2 percent in May from 3 percent in April on higher food and energy costs, after slowing for six consecutive months, data from the Philippine Statistics Authority released Wednesday showed.

The latest reading is within the 2.8 to 3.6 percent forecast range of the Philippine central bank, but was higher than the median economist forecast of 3 percent.

The National Economic and Development Authority attributed the increase primarily to hot and dry weather patterns triggered by a mild El Nino climate pattern. When the phenomenon is weak, it tends to cause a lack of rain.

Key points:

―― The year-on-year rise in headline inflation was led by heavily weighted food and non-alcoholic beverages (+3.4 percent in May vs 3 percent in April) and utilities and fuels (+3.3 percent vs +3.2 percent). Upward pressure from food items picked up again after a surge last year: vegetables +12.5 percent, fruit +4.6 percent and fish +4.2 percent.

―― From the previous month, headline inflation accelerated 0.4 percent on a seasonally adjusted basis, marking its fastest pace since October 2018 (+0.3 percent).

―― Excluding selected food and energy items, core inflation gained 3.5 percent from a year earlier in May, accelerating from 3.4 percent in April.

―― “Faster price adjustments in food and non-alcoholic beverages drove the uptick in headline inflation as weak El Nino conditions persisted, and brought significant damage to the agriculture sector in the midst of the election period’s strong consumption demand,” Socioeconomic Planning Secretary Ernesto M. Pernia said in a statement.

―― Pernia cited as upside risks to inflation the threat of the African swine fever (ASF) entering the Philippines, the increase of rice prices in the international market, and the volatility in global oil prices. “With the possible global pork shortage and the ban on importation of pork products from ASF-affected areas, domestic production of livestock should be beefed up to meet household and commercial demand,” he said.

―― HSCB economists said in a report that the 1.4 percentage points contribution of higher food prices to the headline CPI may persist until the dry spell is over. The state weather bureau has predicted El Nino may continue until August.

―― Michael Ricafort, economist at the RCBC bank, said in a note that higher global oil prices in early May, that led to a series of fuel price hikes locally, may have contributed to the slight uptick in consumer prices last month, while HSCB expects fuel prices may ease in June as oil prices have shifted lower.

Takeaway:

―― HSBC believes the latest inflation figure “may be largely transitory.” It sees headline prices below 3 percent in the second half of the year due to the base effects and benign demand-side pressures. Ricafort also expects a deceleration to below 3 percent beginning in June, forecasting the removal of volume limits on imported rice will lead to higher supply and further lower prices.

―― Carlo Asuncion, chief economist at UnionBank, told NNA the May figure could signal that the central bank might maintain its key rates, while Ricafort sees further easing as early as at the next policy meeting on June 20. The bank cut rates last month by 25 basis points to support growth amid tamed inflation.

―― HSCB also forecast further monetary easing with another 25 basis points cut in the fourth quarter due to “benign” inflation and lower GDP growth which it expects at 6 percent in 2019.