Inflation update: A new base year

PHILIPPINES - In Brief 04 Feb 2022 by Romeo Bernardo

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The Philippine Statistics Authority (PSA) released today its new 2018-based consumer price indices, showing a 3% headline inflation rate for January. Although the headline rate looks relatively benign, prices were sharply higher month-on-month, rising 1% between December and January. Most of the increase was accounted for by much higher food prices which rose 2.4% due to rising fish, vegetable, meat and corn prices. This reflects in part the impact of typhoon Odette in late 2021. So far, publicly available data for the new series only extend back to 2021. Comparing the two sets of data, last year’s headline inflation rates using 2018 as the base year were on the average about 50bp lower than inflation rates under the old series, i.e., the annual average becomes 3.9% instead of 4.5%.This can be explained by the changes in the weights of goods and services in the consumer basket, which were derived from the Family Income and Expenditure Survey (FIES), a triennial nation-wide household survey. Comparing the expenditure shares of households in 2012 and 2018 (Table 1), the weight of food and non-alcoholic beverages, which was the main source of higher inflation last year, fell by 0.6ppt. The lower inflation rate of this sub-group using 2018 as the base year (4.2%) compared with 2012 (5.2%) further points to changes in the relative importance of the component goods.