Poll: Inflation likely picked up in Oct.

By Luisa Maria Jacinta C. Jocson, Reporter

HEADLINE INFLATION likely quickened in October amid higher prices of key commodities like food and fuel, analysts said.

A BusinessWorld poll of 11 analysts yielded a median estimate of 2.4% for the consumer price index (CPI) in October.

The Bangko Sentral ng Pilipinas gave a 2-2.8% inflation forecast for the month.

“Higher prices of food commodities such as vegetables, fruits, and fish as well as the increase in prices of domestic petroleum products and the peso depreciation are the primary sources of upward price pressures for the month,” the BSP said in a statement.

If realized, October inflation would have accelerated from the 1.9% print in September. However, it would still be slower than the 4.9% in the same month a year ago.

“Estimated October inflation is 2.4% year on year. Potential drivers include higher petroleum prices, lower electricity rates, moderate food inflation, and peso depreciation,” Security Bank Vice-President and Research Division Head Angelo B. Taningco said.

Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said that unfavorable weather conditions likely caused a spike in prices of food items, particularly vegetables and fruits.

Agricultural damage due to Severe Tropical Storm Kristine amounted to P3.76 billion, the latest bulletin from the Agriculture department showed.

Chinabank Research noted the possible pickup in food inflation. “Higher prices of vegetables fruits, fish, and eggs offset month-on-month declines in the prices of rice and meat.”

“Higher fuel prices for October also contributed along with the uptick of prices in various food items,” Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc., said.

In October alone, pump price adjustments stood at a net increase of P2.80 per liter for gasoline, P4.60 per liter for diesel, and P3.25 per liter for kerosene.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort also noted the weaker peso exchange rate, which “could lead to some increase in importation costs and overall inflation.”

The peso closed at P58.10 per dollar at end-October, depreciating by P2.07 from its P56.030 finish at end-September.

On the other hand, the central bank said inflation would be offset by lower prices of rice and meat, as well as the reduction in electricity rates.

Manila Electric Co. (Meralco) lowered the overall rate by P0.3587 per kilowatt-hour (kWh) to P11.4295 per kWh in October from P11.7882 per kWh a month prior.

For residential customers consuming 200 kWh, this translated to a decrease of around P72 in their total electricity bills for the month.

Rice prices have also been on the decline after the executive order slashing tariffs on rice imports to 15% took effect in July.

The latest data from the Agriculture department showed the average price of well-milled rice ranged from P43 to P54 per kilogram at end-October, lower than the P47-to-P55 range at end-September.

Meanwhile, regular milled rice cost P40-P50 per kilogram from P45-P50 per kilogram a month ago.

DOWNTREND TO CONTINUE
For the coming months, analysts said that inflation would continue to settle within the BSP’s 2-4% target band.

“Inflation could still remain at the 2% levels for the rest of 2024, though some seasonal pickup in prices are expected towards the Christmas holiday season amid increased demand, but only to eventually ease upon crossing the holiday season,” Mr. Ricafort said.

Mr. Neri said inflation should remain “manageable” in the next 12 months, barring any shocks.

“Upside risks to this outlook include the possibility of La Niña and spread of African Swine Fever,” he said.

“It should also be noted that inflation remains sensitive to climate conditions and could go up easily. However, stable commodity prices amid China’s economic slowdown may offset these risks.”

Expectations of within-target inflation would allow the BSP to continue its easing cycle, Mr. Ricafort said.

“For monetary policy, I think it’s on autopilot and I see very little factors to interrupt a 25-bp cut in December,” Patrick M. Ella, economist at Sun Life Investment Management and Trust Corp. said.

BSP Governor Eli M. Remolona, Jr. earlier signaled a possible 25-bp cut at the Monetary Board’s Dec. 19 meeting, its last for the year.

The central bank has so far lowered borrowing costs by a total of 50 bps since it began its easing cycle in August.

“Furthermore, succeeding monthly inflation figures this quarter will likely stay below 3% due to lower rice tariffs and base effects,” Chinabank Research said.

Sarah Tan, an economist from Moody’s Analytics, said that despite the expected reacceleration, within-target inflation will “reaffirm BSP’s view that inflation expectations are well-anchored.”

“While this will give BSP the confidence to deliver another 25-bp rate cut in December, but a weakening peso could prompt them to hold off the loosening,” she added.

With inflation expected to remain manageable, Mr. Neri said a rate cut from the BSP could be on the table in December.  He cited risks that could derail the BSP’s rate-cutting cycle, such as further peso weakness and uncertainty in the US Federal Reserve’s own easing path.

“A stronger-than-expected US jobs report or a Republican sweep in the upcoming US elections could reinforce this sentiment, potentially weakening the peso further and adding upward pressure on inflation. The BSP may consider a pause in its rate cuts if the Fed doesn’t cut as anticipated,” Mr. Neri said.

“The recent volatility in the markets highlights the need for prudence when it comes to rate cuts. While inflation forecasts allow room for a cut, aggressive action may not be prudent in the current climate.”

The BSP has said that it will “continue to take a measured approach in ensuring price stability conducive to balanced and sustainable growth of the economy and employment.”