FILIPINO consumers could face renewed pressure on food, transportation and other household expenses as inflation is projected to accelerate to 6.9 percent in September, with higher fares and wages expected to add to price pressures in the coming months.
The forecast by BPI lead economist Emilio S. Neri, Jr. would mark the end of four consecutive months of easing inflation and bring the rate to its highest level since April, when inflation peaked at 7.2 percent.
September inflation was estimated at 0.75 percent month on month, according to BPI.
Food is expected to account for much of the September increase, with monsoon rains and flooding disrupting the supply and transport of perishable goods, particularly vegetables, fruits and fish, Neri said.
Rice prices also remained firm, while higher transport costs added to the pressure as the relief from lower fuel prices early in the month was short-lived.
Fuel prices began rising again in the second half of September amid renewed tensions in the Middle East that pushed global oil prices higher, offsetting the earlier decline in pump prices. Utilities provided only a partial counterbalance to the increase, according to Neri.
The expected September acceleration could signal the beginning of a second inflation peak, with headline inflation potentially breaching seven percent in the coming months, Neri said.
He noted that the potential second wave would be broader and more persistent than the spike recorded in April, which was largely driven by fuel prices. The latest pressures are expected to come from food, labor costs and other supply-side factors.
Consumers are also likely to feel the impact of higher public transport fares more fully starting in October. The Land Transportation Franchising and Regulatory Board approved fare increases on Sept. 28, which will feed into the inflation basket in the succeeding month.
Wage increases could add another layer of pressure as higher labor costs are passed on to the prices of goods and services.
Unlike fuel prices, fares and wages are less likely to reverse quickly, making the latest inflation pressures potentially more difficult to unwind, Neri said.
Other risks to the inflation outlook include a potential Super El Niño, continued volatility in global oil prices due to Middle East tensions, a weaker peso and the pending decision of the Energy Regulatory Commission on the rate reset of Manila Electric Co.
The expected acceleration in inflation could also keep monetary policy tight as the Bangko Sentral ng Pilipinas (BSP) seeks to contain price pressures and support the peso.
The BSP raised its policy rate to five percent in August, its third consecutive 25-basis-point increase. With the impact of fare and wage increases still ahead, Neri said renewed inflation and peso pressures could strengthen the case for further, or potentially more aggressive, monetary tightening.
Higher interest rates, however, could add to financing costs for businesses and households, potentially weighing on economic activity as firms face higher borrowing costs while consumers contend with more expensive goods and services.
Neri also called for stronger fiscal measures to address supply-side constraints and reduce the burden on monetary policy. These include faster infrastructure implementation, improvements in agricultural productivity, greater energy security, and structural and governance reforms.
He said supply-side constraints are increasingly limiting economic growth, making reforms needed to raise the economy’s potential output and ease the pressure on monetary authorities. / KOC