​Inflation concerns

PHILIPPINES - In Brief 11 Oct 2021 by Romeo Bernardo

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In a September Pulse Asia survey[1] published last week, “controlling inflation” emerged as the most urgent national concern, significantly ahead of “controlling the spread of covid-19.” Government’s approval score for handling inflation dropped 26 percentage points compared with survey results in September last year, while disapproval increased 19 percentage points. Indeed, between the two periods, the headline inflation rate steadily rose from 2.3% to 4.8%, with inflation for the bottom 30% income households higher on average by 50bp. A decomposition of the headline rate shows that higher food and energy costs were the main culprits, the former already eased by temporarily liberalizing pork import quota and tariffs.CHART 1.PHL inflation, yoySource: PSA, authors’ computationsAlthough the latest inflation print for September was lower than what analysts expected, worries continue that the peak may yet come in 4Q, driven by:The rise in international oil prices to $80/bbl following OPEC’s decision to stick to production volumes in 4Q. This has prompted the energy department to warn of “looming price increases” last week.[2]Lagged adjustments in electricity prices to reflect higher crude and coal prices (as well as any peso depreciation resulting from higher imports) that are pass-through costs for power generating companies. The Philippine power sector relies heavily on coal (42% of installed capacity in 2020) as well as oil (16%) and natural gas (13%), which is also pegged to oil prices.[3]Expectations of a firmer rebound in economic activity in 4Q with the number of covid cases, Delta-driven, now declining, vaccine coverage expanding and quarantine restrictions being e...