March inflation jumps to 4%

PHILIPPINES - In Brief 05 Apr 2022 by Romeo Bernardo

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The large upward adjustments last month in domestic pump prices pushed up the headline inflation rate to 4%, the upper end of the BSP inflation target, from only 3% in February. The headline rate reflects a month-on-month inflation rate of 0.6%, with may be traced almost entirely to increases in the items “electricity, gas and other fuels,” and “fuels and lubricants for personal transport equipment.” With the disruption in global oil markets and continuing uncertainties caused by Russia’s aggression against Ukraine and resulting western sanctions, we expect domestic price pressures to persist especially as higher fuel costs creep into prices of other goods and services. As it is, many companies, especially in the food industry, are deferring price adjustments despite the surge in input costs (such as wheat, sugar, corn and transportation) to cushion demand, but exhaustion of inventories amid continuation of hostilities may prod them to start raising prices. Second-round impacts are being managed surgically by the economic team through a combination of direct subsidies to avert transport fare hikes and increasing food supplies through temporary relaxation of selected trade barriers, among others. But additional pressures are coming not only from peso depreciation but also an upswing in wage demands. Thus, if oil prices remain at current elevated levels, the headline inflation rate could very well breach 5% by 2Q and remain elevated for the rest of the year. Since the January Omicron wave, Covid-19 fears seem to have receded with overall mobility outside residences rising and some positive signals from manufacturing PMIs and bank lending. On the other hand, the improveme...