Sharply higher rice costs halted a six-month decline in Philippine inflation in August, adding pressure on the central bank to step up vigilance against price risks.
(Bloomberg) — Sharply higher rice costs halted a six-month decline in Philippine inflation in August, adding pressure on the central bank to step up vigilance against price risks.
Consumer prices rose 5.3% from a year ago after gaining 4.7% in July, the statistics agency said on Tuesday. While the print was faster-than-expected in a Bloomberg survey, it came within the central bank’s view of between 4.8% and 5.6%.
Rice inflation quickened to 8.7%, marking the sixth consecutive month of increase and the fastest pace since November 2018, the statistics agency said. President Ferdinand Marcos Jr. has capped prices of the staple grain amid higher retail costs and reports of hoarding by traders. Rice makes up around 9% of the nation’s consumer basket.
Bangko Sentral ng Pilipinas Governor Eli Remolona has flagged inflation risks including higher rice and fuel prices, and said a rate cut isn’t on the monetary authority’s radar at the moment.
Inflation is “expected to remain elevated in the coming months” due to supply shocks on food prices and higher fuel costs, the central bank said in a statement Tuesday. But BSP said it expects inflation to ease back to within its 2%-4% target by the fourth quarter.
What Bloomberg Economics Says…
“A sharp jump in headline inflation in August opens the door for another rate hike by Bangko Sentral ng Pilipinas at its next meeting on Sept. 21.”
— Tamara Mast Henderson, Asean economist
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National Economic and Development Authority Secretary Arsenio Balisacan said the government may implement a temporary reduction in rice import tariffs amid an expected drop in domestic output due to El Nino and export curbs enforced by top shipper India.
Apart from rice, price gains in other food items also surged, with vegetable inflation coming in at 31.9% and fish at 6.9%. The spike in vegetable prices was largely due to production losses from recent monsoon rains and Typhoon Doksuri, the economic planning agency said.
“Administrative measures are likely to be the first line of defense to fight supply-side shocks in food,” said DBS Bank Ltd. senior economist Radhika Rao, who expects the BSP to keep its benchmark rate unchanged at the next meeting on Sept. 21 but may maintain its hawkish stance.
An enduring hawkish bias may help support the peso, which has fallen almost 3% against the dollar this quarter. The currency declined 0.4% to 56.82 per dollar on Tuesday.
If the resurgence in inflation “becomes a trend we could see a hike from BSP,” said ING Groep NV senior economist Nicholas Mapa, but added that further tightening may be the central bank’s “last resort” given the slower economic growth in the second quarter.
–With assistance from Manolo Serapio Jr., Cliff Venzon, Cecilia Yap, Karl Lester M. Yap and Jeffrey Hernandez.
(Adds analysts’ comments and details throughout.)
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