November 28, 2022

(UPDATE) INFLATION in the country surged to 7.7 percent in October, the highest increase in 14 years, the Philippine Statistics Authority (PSA) reported on Friday.

The rate is likely to rise further in the last two months of the year, the PSA said.

It rose from 6.9 percent in September and almost doubled the 4.0 percent a year earlier.

The increase was higher than the 7.3 percent median in The Juan Kabayan’ poll of analysts and was near the upper end of the Bangko Sentral ng Pilipinas’ (BSP) 7.1 to 7.9 percent range for the month.

The last time consumer price growth was higher was in December 2008 when it hit 8.2 percent.

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BSP Governor Felipe Medalla told Bloomberg on Friday that “our best guess is that it will peak either next month or the last month of the year.”

The stock market initially fell on the news but was lifted by last-minute bargain hunting.

The benchmark Philippine Stock Exchange index ended the day up 29.42 points or 0.48 percent to 6,185.53. The peso, meanwhile, added 25 centavos to close at P58.55 to the US dollar.

National Statistician Dennis Mapa, who attributed the October rise to “increasing food inflation,” told a briefing there was a “substantial probability of an increase” given rising cooking gas prices and the recent damage from Storm “Paeng.”

In a statement, the PSA attributed the continued inflationary rise to the “higher annual growth rate in the index for food and non-alcoholic beverages at 9.4 percent, from 7.4 percent in September 2022.”

Food inflation alone increased to 9.8 percent, up from 7.7 percent in September and more than double the 4.0 percent in October 2021.

Core inflation, which does not include price-volatile food and energy items, rose to 5.9 percent from September’s 5.0 percent. It stood at 2.5 percent a year earlier.

The National Economic and Development Authority (NEDA) said in a statement the “surge in prices resulted from external price pressures, like the Russia-Ukraine war and lockdowns imposed in parts of China, which disrupted global supply chains, and the lingering aftermath of recent typhoons, including Typhoon ‘Karding’ that hit the country in late September.”

NEDA Secretary Arsenio Balisacan said the government’s “immediate priority is to continue supporting the most vulnerable sectors of the economy, hence, the cash transfers and fuel discounts will continue.”

Medalla told Bloomberg that “our forecast is by the second half of next year, it (inflation) will be below four [percent] already.”

The BSP, which has a 2.0 to 4.0 percent inflation target, has estimated that this year’s result will be in the 5.6 to 5.7 percent range. Year to date, average inflation is at 5.4 percent.

Commenting on the latest inflation data, Bank of the Philippine Islands (BPI) lead economist Emilio Neri Jr. said, “we continue to see price pressures that could prevent inflation from going back to the target of the BSP in the coming year, with inflation prints likely to remain above seven percent for the remainder of the year.”

“Given the absence of structural reforms in the agriculture industry, supply constraints will likely persist. The importation of food products may not provide enough relief since global prices of food are also high,” Neri said.

The latest consumer price growth figure underlined Medalla’s preemptive announcement on Thursday of a 75 basis point increase in key interest rates on November 17.

In the Bloomberg interview, he reiterated that the move aimed to prop up the peso and maintain a 100-point differential with the US Federal Reserve’s rate.

Asked about the Marcos government’s push to stop the currency — which last month hit an all-time low of P59 to the dollar — from falling to P60:$1, Medalla replied that monetary authorities would not draw a line but would continue to use policy tools such as interest rates and the country dollar reserves to support the peso.

Neri said he sees the peso continuing to depreciate in the coming months. With the country becoming more and more reliant on imports, dollar outflows will continue to significantly exceed inflows, he added.

“Even if The Fed stops hiking in 2023, it may not necessarily lead to a huge appreciation of the peso given the country’s fundamentals. The peso may even continue to weaken in this scenario if the trade deficit remains sizable, although at a slower pace compared to this year,” Neri said.

On Friday, Malacañang said President Ferdinand Marcos Jr. has ordered the continuation of financial aid and fuel discounts to the most vulnerable sectors to help cushion the impact of rising inflation.

In a statement, the Palace said the President “is committed to support our farmers and other stakeholders in agriculture in post-disaster recovery, while improving the value chain and investing in climate-smart technologies remain a priority in the medium and long term.”

“As part of the response to mitigate water-induced damages to lives, livelihood and property, the effective management of our water resources will also be prioritized. Even early on, the President had stressed the need to establish the Department of Water Resources,” it added.

The President also directed concerned agencies to invest in innovations and technologies to make communities and businesses resilient amid extreme weather challenges.