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Inflation nears 4-year high in June

INFLATION climbed to its highest level in nearly four years in June, further eroding the purchasing value of the peso to a record low, the Philippine Statistics Authority (PSA) said on Tuesday.

Preliminary data from the Philippine Statistics Authority (PSA) showed the consumer price index (CPI) accelerated to 6.1% year on year in June, exceeding the Bangko Sentral ng Pilipinas’ (BSP) 2-4% official target range for a third straight month. This was faster than the 5.4% in May and 3.7% a year ago.

The June headline figure was a tad higher than the 6% median estimate in a BusinessWorld poll conducted last week, and settled within the 5.7%-6.5% forecast range of the BSP for that month.

It also matched the pace recorded in November 2018 and was the fastest growth in 44 months or since the 6.9% print in October 2018.   

Month on month, inflation picked up by 0.9%. On a seasonally adjusted basis, month-on-month inflation rose by 1% in June.

The June print brought year-to-date average inflation to 4.4%, higher than the 4% a year ago. This is still below the BSP’s revised 5% average inflation forecast for this year.

At a press briefing on Tuesday, National Statistician Claire Dennis S. Mapa said June inflation was driven by the uptick in food and transport prices.

“Out of the 13 commodity groups we track, nine of them increased in June and majority of them came from food,” Mr. Mapa said in Filipino.

Asked if this was the peak, Mr. Mapa said they are still seeing an increase in prices.

“If you will notice the slope in prices from January to June, it is very steep every month. So based on our monitoring there are expectations of these prices, particularly food prices which will move upward,” he said.

The heavily weighted index for food and non-alcoholic beverages, which account for nearly 38% of the theoretical consumer basket, grew by 6% year on year in June from 4.9% in May.

The food-alone index also jumped by 6.4% in June, faster than 5.2% in May.

Prices of meat and others surged by 8.1% year on year in June from 5.4% in May. Rice prices, likewise, inched up by 2% from 1.5% in the previous month.

The transport index, which accounts for 9% of the CPI, quickened by 17.1% in June from 14.6% in May. This was attributed to the faster increase in the prices of gasoline (53.9% in June from 47.2% in May); other passenger transport by road (2.7% from 1.1%); and diesel (92.5% from 86.2%).

Alcoholic beverages and tobacco rose by 7.8% in June from 6.8% in May, while utilities picked up by 6.6% from 6.5%.

Furnishings, household equipment and routine household maintenance grew by 2.9% in June from 2.5% in the previous month.

Higher annual hikes were seen in health (2.6% from 2.4%); personal care and miscellaneous goods and services (2.6% from 2.5%); clothing and footwear (2.2% from 2.1%), and recreation, sport, and culture (1.9% from 1.7%).

Meanwhile, restaurants and accommodation services and education services steadied at 2.8% and 0.6%, respectively.

Information and communication commodities, on the other hand, eased to 0.5% in June from 0.7% in the previous month.

In a statement, BSP Governor Felipe M. Medalla said inflation is expected to remain elevated in the next few months “due to the continued rise in global commodity prices and more pronounced second-round effects on domestic goods and services.”

“The BSP is prepared to undertake necessary policy actions to bring inflation back to a target-consistent path over the medium term and deliver on its primary mandate of price stability. The upward adjustment in monetary policy rates in May and June should help temper inflation expectations,” Mr. Medalla said.

PURCHASING POWER
With the latest headline inflation print, the value of the P1 declined further to 87 centavos in June from 88 centavos in May. This was the lowest value of the local unit under the 2018 prices.

The purchasing power of the peso is computed by getting the reciprocal of the CPI then multiplied to 100.

“The purchasing power of the peso is a function of the CPI so if our CPI goes up, it erodes the purchasing power of our money to buy goods and services,” Mr. Mapa said.

Meanwhile, inflation as experienced by the poor households, under 2012-based prices, increased by 5% in June, higher than the 4.3% both in May and in June last year.

The PSA said the rebased 2018-based inflation for poor income households is scheduled to be released in December 2022.

“The main culprit driving inflation pressures remain the same since March: oil and food prices,” said Security Bank Corp. Chief Economist Robert Dan J. Roces.

“Hence the larger CPI contributions from the transportation, utilities, and food baskets brought on by the effectivity of transport and wage hikes, costlier operations, and supply challenges in wheat, sugar, meat, and poultry last month.”

Mr. Roces also noted the possible emergence of spillover effects on core prices (nonfood and non-energy), which grew by an average of 0.3% on a monthly basis in June.

“This underscore persistently higher operating costs for suppliers which are then shared to consumers through higher sticker prices, and push towards a disanchoring of inflation expectations. With higher domestic minimum wages and further price pressures from abroad, we expect an uptick in core inflation soon,” he said.

Global oil and commodity prices spiked after Russia invaded Ukraine in late February this year.

In June, minimum daily wages increased by P30 to P110, depending on the region.

For Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr., inflation has probably not peaked yet.

“The headline figure may continue to go up until October assuming oil prices will stay at current levels. In this scenario, average inflation is expected to settle between 5 to 5.5%,” he said on a research note.

UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said inflation is expected to remain elevated, with his forecast now at 5% for this year.

“Easing may continue into 2023 with inflation hitting the 2-4% range by the government by at least by mid-2023,” he said. — Abigail Marie P. Yraola

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