​Inflation surprise

PHILIPPINES - In Brief 07 Sep 2021 by Romeo Bernardo

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The headline inflation rate unexpectedly shot up to 4.9% in August, the upper limit of the BSP’s inflation forecast for the month and higher than the 4.4% median forecast by analysts. On a seasonally-adjusted basis, prices rose 0.6% month-on-month, largely reflecting production shortfalls in fish and vegetables. An uptick in rice price, an index heavyweight, was also recorded despite recent downtrend in international rice prices. August inflation is the highest this year and follows several months of disinflation (from 4.7% in February to 4% in July). It also coincided with the reimposition of strict community quarantine.The latest inflation print brings the year-to-August average to 4.4%. Although government is trying to address raw food supply issues using other policy levers, e.g., allowing higher fish import volumes, the risk that food prices will stay elevated for the rest of the year is not small, considering especially poorer weather with more typhoons forecasted for the rest of the year. The easing of quarantine restrictions may also lead to increases in prices of manufactured goods, as producers especially of food products have been reporting higher costs.[1] We are adjusting our inflation forecast for the year to 4.4%, still expecting the headline rate to return within BSP’s 2-4% target by late this year.Separately, the statistics bureau reported today lower unemployment rate in July (6.9%, down from 7.7% in June) that was nevertheless accompanied by much higher underemployment (21% vs 14% in June) among the employed cohort. Notwithstanding a higher employment rate, the number of employed persons declined 7.6% due to a much lower labor force participation rat...