MANILA - Inflation has steadied, with the headline number remaining at 4.5 percent, same as March. However, there are troubling trends that will present challenges to consumers in the coming months.
Last month, transport inflation hit its highest level since May 2005. Prices of pork, beef and chicken are also likely to remain high unless the government intervenes.
Transport inflation shown in orange in this chart by the ABS-CBN Data Analytics team, is rising, and the trend is steepening. If it were not for a slowdown in another major commodity group, food, transport inflation would have likely pushed inflation higher in April from March levels.
Undersecretary Dennis Mapa of the Philippine Statistic Authority attributed rising transportation inflation to higher prices of fossil fuels. He noted that this also bled into other household expenses.
PSA data shows inflation of fares, specifically for tricycles and jeepneys, were major contributors. Quarantine restrictions, and physical distancing protocols, have made it very expensive to travel since the start of the pandemic, and this continues to be a problem with the 2021 surge in COVID-19 cases.
“Movement of oil prices is something we need to watch moving forward as it is poised to retest recent highs due to re- opening hopes globally and low base effect of May 2020 inflation with next month's release of data,” said Helen Go Oleta, Chief Investment Officer at RCBC.
The food inflation chart above compares rice, meat, fish and vegetables. Rice, shown in blue, and vegetable inflation, shown in green, were negative in April. Fish inflation in gray reflected a slight uptick in spite of lower prices of tilapia and bangus. Meat prices remained very high compared to the other items.
The decrease in vegetable prices coincided with the rise of community pantries around the Philippines in April. These pantries offer food items such as rice, vegetables, and fruit for free to anybody in need.
Political Economist Calixto Chikiamco however said the reduction in prices is probably not because of the pantries.
“Demand has suffered due to the tighter mobility restrictions, causing prices to moderate. Also, it's summertime and harvest season for certain vegetables and fruits. I doubt if the mushrooming of community pantries is the reason for a general decline in vegetable prices.”
Mapa was also hesitant to attribute the drop in food prices to community pantries.
“I don’t know whether this is due to additional supply, low demand, impact of community pantries,” Mapa said.
Prices of pork, beef, and chicken will likely continue to rise in the coming months “unless there is intervention,” he added.
Bangko Sentral Governor Benjamin Diokno said the government is already intervening by planning to raise the supply of pork imports by lowering tariffs.
“The timely approval of the temporary cut in pork import tariffs is seen to help address supply constraints and ease price pressures going forward. In addition, inflation expectations remain well anchored to the inflation target over the policy horizon.”
The BSP had forecast April inflation would fall within the range of 4.2 to 5 percent.
In the chart above, inflation is broken down by commodity groups, with April 2021 shown by the darkest blue bars. Restaurant or prepared meals were also a significant contributor to inflation, alongside housing expenses such as LPG.
Health inflation also rose. Mapa said a key factor here was higher costs for hospital services, consultations, check-ups, specialized services, and certain drugs and laboratory tests. However, he also stressed that the overall impact on inflation from these health costs remained minimal. He couldn’t say either if these were related to the recent surge in COVID-19 cases.
April inflation was steady compared to March levels, but it remained above the government’s target range of between 2 and 4 percent for a fourth straight month. Diokno said inflation will only return to the midpoint of that target range by next year.
The April inflation rate again gave the Philippines the highest inflation amongst major ASEAN economies. The Philippines, shown in red, has an inflation rate much higher than that of Vietnam, Singapore, Malaysia, Indonesia, and Thailand.
The PSA will report the Philippines’ first quarter GDP numbers next week. Mapa did not comment on how elevated inflation might impact the numbers, but he noted that inflation has been high.
“Yung trend that we are seeing in the last four months, ito ay mataas, I am looking at the last 4 months compared to previous years.”
High inflation tends to reduce the buying power of households, and household consumption is a key driver of the Philippine economy.