Consumer prices rose faster for the fourth straight month to a two-year record in January after food and transport costs spiked, according to the local statistics agency.
The Philippine central bank in a separate statement said inflation could be better tempered through non-monetary policies.
Headline inflation quickened to 4.2% last month, faster than 3.5% in December and 2.9% a year earlier, the Philippine Statistics Authority (PSA) said in a statement on Friday. It was also the fastest since 4.4% in January 2019.
January inflation was higher than the 3.6% median estimate in a BusinessWorld poll of 16 economists last week.
It also exceeded the estimate of 3.3-4.1% for the month and 2-4% annual target of the Bangko Sentral ng Pilipinas (BSP).
“The projected uptrend in inflation is seen to be temporary,” BSP Governor Benjamin E. Diokno said.
“The sources of near-term inflation pressures are supply-side shocks in nature that should not require a monetary policy response unless they lead to further second-round effects,” he added.
The government should instead ease domestic supply constraints, Mr. Diokno said, adding that average inflation would probably settle within the central bank’s 2-4% target.
The statistics agency traced the faster increase to the heavily weighted food and nonalcoholic beverages, whose prices increased by 6.2% in January from 4.8% a month earlier.
Other major contributors were transport costs, which rose by 8.6%, and higher prices of restaurant and miscellaneous goods and services that grew by 3%.
Inflation was tempered by the slower increase in the prices of alcoholic beverages and tobacco, which eased to 11.7% from 12.2% in December; furnishing, household equipment and routine house maintenance, which slowed to 2.9% from 3.3%; and recreation and culture, which slowed to 0.7% from 0.6%.
“Our priority right now is to ensure that food supply is adequate so that households affected by COVID-19 and the quarantines will not be doubly affected by the increase in food prices,” Acting Socioeconomic Planning Secretary Karl Kendrick T. Chua said in a statement.
“In the interim, allowing more importation of key agricultural products, while adhering to strict safety protocols to prevent the entry of contaminated products, will help augment supply and manage inflation,” he added.
Core inflation, which excludes volatile prices of food and fuel, quickened to 3.4% last month from 3.3% in December and January 2020.
Food inflation accelerated to 6.6% from 4.9% in the previous month, buoyed by double-digit increases in meat and vegetable prices.
January inflation for meat was 17.1% from 10% in December, while vegetable prices surged by 21.2% from 19.7% in December.
Meanwhile, tricycle, jeepney and bus fares increased by 46.7%, 6.4% and 4.5, pushing transport costs up. On the other hand, fuel prices fell by 9.3% from 10.6% in December.
Inflation in the National Capital Region (NCR) quickened to 4.3% last month from 3.2% in December and 2.7% a year earlier.
Inflation for the bottom 30% income households hit 4.9%, faster than 4.3% in December and 2.3% a year ago. This was the highest in two years, or since 5.2% in January 2019.
NO RATE CUT
National Statistician Claire Dennis S. Mapa told an online news briefing the inflation uptick in the capital region and for the poor had been mainly caused by faster increases in prices of food especially fish, meat, vegetables and fruits.
Nicholas Antonio T. Mapa, a senior economist at ING Bank N.V. Manila, traced the continued increase in food prices to typhoons that devastated parts of Luzon in the past quarter, aside from the spread of African Swine Fever.
“This was the first breach since 2018 when inflation surged to a high of 6.7% driven also by rising food prices and higher transport costs,” he said in a note.
“We expect inflation to remain elevated in the coming months with base effects and persistent cost side pressures to force the headline close to or above the 4% level,” he added.
The central bank was unlikely to cut key policy rates at its meeting next week despite the faster inflation, Mr. Mapa said.
“We expect BSP to refrain from adjusting policy in the near term as Diokno provides monetary support to the economic recovery, with monetary authorities hoping to ride out this latest breach until supply conditions normalize in the coming months,” he added.
Inflation is likely to continue to rise while supply issues were being addressed and global oil prices rise, said Alex Holmes, Capital Economics’ economist for Asia.
He said this would force BSP to keep policy rates unchanged in the near term, but the easing cycle might continue toward the end of the year to support economic recovery.
“We still expect more rate cuts later in the year,” Mr. Holmes said in a note. “The rise in inflation should prove temporary. What’s more, the economy is still in need of more support,” he added.
“A failure to contain the virus, economic scars from the pandemic and lackluster fiscal support mean the recovery would continue to underwhelm in the quarters ahead,” Mr. Holmes said.
Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said any second-round inflation effects in the coming months could trigger a rate hike.
“A new record-low local policy rate of 2% is now unusually below the inflation rate, which is currently higher at 4.2%, that results in net negative interest rates, thereby making any further cut in policy rates more challenging at the moment,” he said.