Inflation could have eased further in April — central bank

THE OVERALL INCREASE in prices of widely used goods could have eased for the sixth straight month to a 20-month low in April as a continued decline in rice prices and the peso’s appreciation offset upward pressures from higher fuel and electricity costs, the Bangko Sentral ng Pilipinas (BSP) Department of Economic Research (DER) said in a statement to journalists on Tuesday.

“The BSP Department of Economic Research projects April 2019 inflation to settle within the 2.7-3.5% range” when the Philippine Statistics Authority (PSA) reports official data on May 7, according to a statement e-mailed to reporters.

“Higher domestic oil prices and the slight upward adjustment in electricity rates are seen to provide upward price pressures for the month”, although “these pressures may be partly offset by the continued decline in rice prices and by peso appreciation”.

Bills of the Manila Electric Co. — the country’s biggest electricity distributor — rose for the third straight month in April, by P0.0633 per kilowatt hour (/kWh) to P10.5594/kWh from P10.4961/kWh in March.

Energy department data also show that, as of April 30, year-to-date fuel adjustments at the pump amounted to net increases of P8.80/liter for gasoline, P6.20/liter for diesel and P4.95/liter for kerosene.

And in a press briefing last Monday, Trade Secretary Ramon M. Lopez said rice now retails for about P34-38 per kilogram (/kg) from as high as about P50/kg a year ago, while PSA data show retail price of regular milled rice easing by 0.9% to P39.55/kg in the first week of April from P39.91/kg a year ago, while that of well-milled rice edged up by 0.34% to P43.87/kg from P43.72/kg in the same comparative periods.

Rice accounts for 9.59% of the theoretical basket of goods used by a typical household that is the basis for computing year-on-year price changes, while liquid fuel, solid fuel, gasoline and electricity contribute 0.13%, 1.22%, 1.28% and 4.8%, respectively.

“Moving forward, the BSP will continue to closely monitor evolving price trends and will undertake necessary measures towards its commitment to price stability,” the BSP-DES said.

In an e-mail, Nicholas Antonio T. Mapa, senior economist at ING Bank NV-Manila, noted that “[t]he April print will mark the third month that inflation will be back within target as supply chains continue to normalize after the 2018 episode, which saw inflation breach the upper end of the BSP’s target band.”

“Given the supply-side nature of last year’s breach, inflation has plunged back to earth quickly with the latest BSP inflation forecast at 3.0% for both 2019 and 2020. Meanwhile, inflation expectations remain well anchored with the latest BSP survey among private sector forecasters pointing to inflation settling at 3.3% for the year,” Mr. Mapa said.

“BSP has vowed to remain data-dependent in its actions and will have three months’ worth of within-target inflation prints to consider. Furthermore, given the forward-looking nature of inflation targeting, inflation expectations and forecasts both point to inflation remaining within target for the next two years. Given BSP Governor (Benjamin E.) Diokno’s recent remarks hinting at a rate cut and RRR (reserve requirement ratio) reduction within the year, we expect that we are getting closer to the central bank finally reversing its ultra-aggressive stance of yesteryear.”

LOWER-INCOME HOUSEHOLDS
Inflation, as experienced by low-income households, was lower in March driven mainly by the easing price increase in food and beverages, the PSA reported on Tuesday.

The March inflation turnout for goods and services used by households at the bottom 30% income segment stood at 4.6%, slower than the year-on-year price increase of five percent in February.

That compared to a 3.3% headline inflation experienced nationwide by the average household in March, even as the consumer price index (CPI) used in measuring headline inflation has 2012 as the base year while the CPI for the bottom 30% income households uses 2000 prices.

The CPI for the bottom 30% income segment has a heavier weighting for the food, beverages and tobacco sub-index to reflect the poor’s consumption patterns.

The food, beverages and tobacco sub-index rose 4.9% year on year from 5.6% in February. Food alone logged a 4.3% growth versus the preceding month’s five percent.

The cost of utilities, consisting of fuel, light and water, accelerated to 4.2% in March from February’s 2.7%. Faster increases were also recorded in clothing (three percent from 2.9%) and services (3.7% from 3.5%).

Housing and repairs were steady at 4.3% as well as the “miscellaneous” sub-index at 2.4%.

Inflation experienced by poor households in the National Capital Region was recorded at 2.3% in March, slower than the 2.9% posted in February. Those that are outside of Metro Manila also experienced a slower inflation trend at 4.6% from five percent.

In an e-mailed reply to questions, University of Asia and the Pacific economist Cid L. Terosa said that the prices of rice and other agricultural products “were relatively stable” in March.

“This contributed significantly to the slowdown in the index for food, beverages and tobacco,” Mr. Terosa said.

“We cannot discount the fact, however, that the base year effect was evident given the high inflation rate [of 5.8%] in March 2018.”

In a separate e-mail, Union Bank of the Philippines, Inc. chief economist Ruben Carlo O. Asuncion said that the inflation experienced by the low-income households “somehow mimics” headline inflation.

“It should be noted that headline inflation has been on a slowdown this 2019. Thus, a slowdown of the bottom 30 inflation is not far behind. In fact, I suspect that the slowdown in this particular population segment is faster…” Mr. Asuncion said. — Reicelene Joy N. Ignacio with MAM