THE country’s headline inflation has slightly accelerated in March 2024, as it clocked in at 3.7 percent, up from 3.4 percent in February.
Despite this increase, the average inflation rate for the first quarter of 2024 stands at 3.3 percent, well within the government’s targeted range of two to four percent for the entire year.
Philippine Statistics Authority director Undersecretary Dennis Mapa said, in a statement on Friday, April 5, 2024, that the slight uptick is mainly due to a faster food inflation rate of 5.7 percent in March 2024, up from 4.8 percent in February 2024.
This increase was influenced by rice inflation, which accelerated to 24.4 percent from 23.7 percent and meat inflation increased to two percent from 0.7 percent. The increased rice inflation rate was spurred by El Niño’s impact on rice-producing nations in Southeast Asia, coupled with export restrictions in India, which escalated international rice prices.
Mapa said the indices of transport and restaurants and accommodation services also recorded faster annual increases, contributing to the uptrend.
Nevertheless, the food inflation rate was tempered by the slower price increases of eggs and other dairy products (2.3 percent from 3.5 percent), fruits (7.9 percent from 8.7 percent), bread and other cereals (4.6 percent from 5.1 percent) and ready-made food products (4.3 percent from 4.6 percent).
Non-food inflation remained stable at 2.4 percent during the month. Transport inflation was recorded at 2.1 percent in March 2024 from 1.2 percent in the previous month, while restaurants and accommodation services went up to 5.6 percent from 5.3 percent. Slower inflation, meanwhile, was recorded in housing
and utilities.
The government, according to National Economic and Development Authority (Neda) secretary Arsenio Balisacan, is closely monitoring weather conditions and their effects on the supply of key commodities, such as food and energy, to protect Filipino households from sudden price increases.
During a meeting on April 3, the Development Budget Coordination Committee retains its target range for inflation at two to four percent from 2024 until 2028.
Inflation outlook
The 3.7 percent inflation rate is well within the Bangko Sentral ng Pilipinas’ (BSP) forecast range of 3.4 to 4.2 percent.
According to the central bank, the inflation outturn is consistent with its expectations that inflation will likely remain within the target range in the first quarter of the year due largely to negative base effects.
However, the BSP warned that inflation could temporarily accelerate above the target range in the next two quarters of the year due to the possible adverse impact of adverse weather conditions on domestic agricultural output and positive base effects.
“The risks to the inflation outlook remain tilted toward the upside. The upside risks to the inflation outlook could emanate from higher transport charges, higher prices of food commodities facing supply constraints, increased electricity rates, higher global oil prices and implementation of a legislated increase in the minimum wage,” the BSP said in its latest inflation outlook report.
The BSP said it will consider the latest inflation outturn in its upcoming monetary policy meeting on April 8.
Despite the increase in the March inflation rate and the possibility of inflation exceeding the BSP’s four percent target in the second quarter due to persistent El Niño effects, Ayala-led BPI stands by its full-year inflation forecast of 3.8 percent.
“Supply of certain food items will likely remain tight until El Niño subsides. However, the breach in the inflation target is likely temporary, with inflation likely to ease in the second half of the year, contingent on the conclusion of El Niño and its impact not being more severe than expected,” said BPI’s senior economist Emilio Neri Jr. in a statement.
Interest rate
Moreover, Neri said BPI is also keeping its expectation of a rate cut of around 75 basis points (bps) this year as the economy remains resilient amid an elevated high-interest environment.
He pointed out that rate cuts might be considered once inflation stabilizes within the BSP’s target range in the third or fourth quarter. However, aggressive rate cuts are unlikely given the prevailing inflationary environment.
Neri also stressed the timing of future rate cuts and their magnitude depends on what the Federal Reserve (Fed) will do. He said that if local inflation conditions are right, the BSP will likely respond immediately with rate cuts once the Fed begins its easing cycle.
“Global supply constraints and geopolitical tensions are contributing to a faster rise in prices compared to the past decade, limiting the BSP’s room for significant rate reductions. Moreover, the economy has been resilient despite the elevated interest rates, with loan growth showing a recovery in January. We continue to expect a rate cut of around 75 bps this year,” Neri said. / KOC WITH TPM / SUNSTAR PHILIPPINES