The inflation rate reached 6.1% in September.
As reported by Keisha B. Ta-asan
The rate of INFLATION rose for the second consecutive month in September, driven by a significant rise in the cost of rice. This places the Bangko Sentral ng Pilipinas (BSP) under pressure to continue with monetary tightening.
“I believe it is possible to increase rates in November, but we are currently examining the inflation data,” stated BSP Governor Eli M. Remolona, Jr. in a Viber message.
The latest information from the Philippine Statistics Authority (PSA) revealed that the overall increase in prices rose to 6.1% in September, up from 5.3% in August, but lower than the 6.9% recorded in September 2022.
The September print exceeded the median of 5.4% in a BusinessWorld survey conducted last week, and also fell within the upper range of the BSP’s forecast of 5.3-6.1%.
The most recent CPI (consumer price index) showed the quickest growth in five months, since April 2023 when it was 6.6%, and was equal to the 6.1% recorded in May.
In September, inflation surpassed the BSP’s target range of 2-4% for the 18th consecutive month this year.
In September, inflation increased by 1.2%, rising from 1.1% in August.
The nine-month average inflation rose to 6.6%, surpassing last year’s 5.1% and remaining higher than the BSP’s newly adjusted forecast of 5.8% for 2023.
The government’s decision to set a maximum price for rice on September 5 did not seem to successfully control inflation in the month of September.
The index for food and non-alcoholic beverages, with a significant weight, increased to a level not seen in seven months, reaching 9.7% in September compared to 8.1% in August. Inflation specifically for food also saw a significant rise, jumping to 10% from 8.2% in the previous month.
In September, the inflation rate for rice rose significantly to 17.9% from 8.7% in August. This is the largest increase since March 2009, when rice inflation reached 22.9%. Rice currently holds the highest percentage in the overall CPI basket at 8.87%.
During a briefing, National Statistician Claire Dennis S. Mapa stated that the cost of rice may have risen due to several retailers being unable to adhere to the mandated price limits of P41 for regular milled rice and P45 for well-milled rice.
“The Philippine Statistics Authority (PSA) obtained data on 2,601 types of regular milled rice in September. Out of these, only 640 were priced at P41 or lower. As for well-milled rice, the PSA gathered information on 3,498 varieties, with 687 (about 20%) adhering to the P45 price cap or lower,” he stated in a combination of English and Filipino.
In September, the average cost of regular milled rice increased to P47.50 per kilogram, up from P43.30 in August. The average price of well-milled rice also saw a rise to P52.70 per kilogram, compared to the previous average of P47.63 from the previous month.
In an email, Senior Economist Nicholas Antonio T. Mapa from ING Bank N.V. Manila stated that he predicts rice inflation to be minimal because of the price limit.
“He stated that despite efforts, price caps were not successful in controlling the crucial cost of rice.”
On Wednesday, President Ferdinand R. Marcos, Jr. declared the removal of the cap on domestic rice costs.
According to BPI’s Lead Economist Emilio S. Neri, Jr., the impact of rice on overall inflation doubled to 1.6% in September, making it the main factor behind the rise in inflation.
The forthcoming rice harvest may aid in stabilizing the cost of the crop. However, domestic production can only meet approximately 85% of the demand for rice, requiring the country to import the remaining amount from other countries.
According to Mr. Neri, there has been no indication of a decrease in global rice prices thus far.
He stated that due to India’s ongoing ban on rice exports, the global rice supply may continue to be limited in the near future.
When the price of rice increases significantly, it also affects the prices of other food items. This is because other food items tend to mirror the price changes of rice, especially those that can be used as alternatives to rice.
Core inflation, which excludes unstable prices for food and fuel, decreased to 5.9% in September compared to 6.1% in the previous month. However, it remains higher than the 5% recorded a year ago.
So far this year, the average core inflation rate has been 7.2%.
According to Mr. Mapa of PSA, the rise in headline inflation was influenced by higher growth rates in transportation (1.2% in September compared to 0.2% in August), healthcare (4.1% compared to 3.9%), activities related to recreation, sports, and culture (5.1% compared to 4.9%), and educational services (3.6% compared to 2.9%).
The inflation rate in the National Capital Region (NCR) rose to 6.1% in September, up from 5.9% in August. Inflation in areas outside of Metro Manila also increased, reaching 6% compared to 5.2% in the previous month.
In September, the inflation rate for households in the bottom 30% income bracket increased to 6.9% from 5.6% in August. On average, it was 7.3% for the nine months leading up to September.
According to the National Economic and Development Authority (NEDA), the government will continue to provide assistance to the most at-risk sectors while also implementing strategies to address increasing prices.
According to the statement, NEDA Secretary Arsenio M. Balisacan stated that the government is dedicated to offering specific aid to vulnerable population groups impacted by high food costs.
The Finance Secretary, Benjamin E. Diokno, stated that the government is increasing its efforts to stabilize inflation.
The government of the Philippines is fully committed to implementing effective policies, programs, and oversight measures to address the issue of increasing prices of goods.
On track to meet goal by the end of 2023.
The BSP predicts that inflation will continue to be high in the upcoming months due to disruptions in the supply of food and oil.
However, the central bank stated that inflation is still expected to slow down and reach the inflation target by the end of 2023, unless there are any additional disruptions in supply.
However, there are still concerns about inflation from 2023 to 2025.
According to the statement, potential factors such as new requests for transportation fare increases, rising prices of essential food items due to limited supply, unexpected minimum wage changes in areas outside of NCR, the effects of El Niño on food and utility prices, and increased electricity rates are all potential risks that could contribute to higher inflation.
According to Mr. Mapa from PSA, the inflation rate in October could be influenced by the P1 increase in jeepney fares which will go into effect on Sunday (Oct. 8).
He observed that increases in fare prices directly affect the rate of transportation inflation, as jeepney fares account for 3.5% of the overall Consumer Price Index basket.
According to Miguel Chanco, the Chief Emerging Asia Economist at Pantheon Macroeconomics, he has increased his prediction for average inflation in 2023 to 6% from his previous estimate of 5.6%, after considering the high inflation rate in September.
The updated short-term forecast suggests that inflation is not expected to reach the BSP’s target range of 2-4% until at least December. Therefore, the previous prediction of a policy easing in the last quarter no longer stands.
Important to note, the (Monetary) Board will not be considering target inflation until their initial meeting in the first quarter of next year. It is unlikely that there will be any new interest rate increases on the agenda next month, particularly if our prediction about the Q3 gross domestic product (GDP) report showing a technical recession is accurate.
On November 9th, the PSA will publish its GDP data for the third quarter.
The BSP stated that it is prepared to continue tightening monetary policy if needed, in order to prevent further increases in overall prices and the potential for secondary effects due to ongoing inflation risks.
The BSP has maintained its primary interest rate at a level close to the highest in 16 years, 6.25%, since March of this year. Previously, Mr. Remolona stated that the BSP is contemplating increasing policy rates if there are ongoing inflationary pressures and even suggested the possibility of a rate hike outside of the usual schedule.
According to ING’s representative, Mr. Mapa, it is possible that the BSP will need to increase borrowing rates once again.
He stated that the BSP will closely monitor the Fed’s actions and may implement an off-cycle rate hike in early November if the Fed also raises rates.
According to the speaker, if the Federal Reserve does not make any changes, the BSP may decide to increase restrictions if their own prediction for inflation indicates that it may reach 4% by 2024.
Last month, the US Federal Reserve announced that it would maintain the target Fed funds rate at 5.25-5.5%, and also stated that they plan to keep interest rates elevated for an extended period of time.
The upcoming meeting of the Fed will take place from October 31 to November 1, and the BSP is set to deliberate on policy on November 16.