MANILA, PHILIPPINES – Despite a steady rise in oil prices, consumer price growth in February was unchanged from the previous month, according to one analyst, who believes that recent changes in computing inflation masked the building price pressures that Filipinos actually felt on the ground.
The Consumer Price Index (CPI) increased by 3% year-on-year in February, remaining unchanged from the previous month, according to the Philippine Statistics Authority on Friday.
The latest reading fell within the 2.8-3.6 percent range predicted by the Bangko Sentral ng Pilipinas for the month. At the same time, the figure remained within the BSP’s 2-4 percent target range, which is good news for a government trying to keep prices under control so that it can continue to nurture the economy’s nascent recovery from the pandemic.
However, Nicholas Antonio Mapa, senior economist at ING Bank in Manila, believes that the headline CPI in February did not accurately reflect the upward price pressures that Filipinos are experiencing when they go shopping or fill up their gas tank.
When the PSA data is broken down, Mapa claims that “we have started to see the impact of higher energy prices surface already for utilities and transport” as supply constraints and Russia’s invasion of Ukraine drive up global oil prices.
Recent changes in the way state statisticians compute inflation are improving the price optics, according to Mapa.
Beginning in January, the PSA changed the base year for the CPI to 2018, when a weak peso and a rice shortage drove inflation to multi-year highs. A rebasing is performed on a regular basis to capture changes in household 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.
National statistician Claire Dennis Mapa, who is not related to ING Bank’s Mapa, explained at a press conference that supply chain issues improved last month, keeping food prices from rising too much. However, he stated that, while rising fuel costs may take months to pass through to food prices, the effects of rising oil prices have already been “felt.”
According to PSA data, housing, water, electricity, gas, and other fuels increased 4.8 percent year on year in February, while transportation fares increased 8.8 percent.
“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.
According to Sanjay Mathur, ANZ Research’s lead economist for Southeast Asia and India, last month’s benign inflation will be temporary “given the recent jump in food prices, i.e., food prices will not be able to offset higher oil prices.”
Nonetheless, the Duterte administration anticipates price increases.
“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 lows to aid the economy’s recovery, has stated that it is monitoring the impact of geopolitical tensions that have fueled recent oil price increases.
The BSP acknowledged that inflation could “accelerate over near term due to higher oil prices as well as the impact of positive base effects.” It also flagged the global and local macroeconomic uncertainty given this uptick caused by recent tensions abroad.
“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,” it said.
The central bank also assured it “continues to have a wide arsenal” of policy instruments to respond to any possible impact from such external shock.
ING senior economist Nicholas Mapa separately said that inflation may breach the government target by May, noting this could prompt the BSP to finally hike interest rates by mid-second quarter.