Inflation in December 2022 continued its climb to a 14-year high of 8.1 percent from 8 percent a month ago due to faster increases in the prices of food and nonalcoholic beverages, the Philippine Statistics Authority (PSA) said Thursday.
National statistician and civil registrar general Dennis Mapa said in an online briefing the December rate was significantly higher than the 3.1 percent in the same month in 2021. This brings the full-year average to 5.8 percent, well beyond the government’s target range of 2 percent to 4 percent for the whole year and also faster than the average of 3.9 percent in 2021.
“This was the fastest inflation since November 2008 [at 9.1 percent],” Mapa said, referring to the year of the global financial crisis.
PSA data showed the continued rise in the country’s inflation rate in December 2022 was driven by a higher price index for electricity, accounting for 1.0 percentage point, followed by vegetables with 0.9, restaurant services at 0.7 and private and public transport at 1.0.
Other key agricultural commodities such as meat and fish contributed a total of 0.8 of a percentage point, while processed food commodities such as sugar and bread and other cereals contributed a total of 0.7 to total inflation.
Faster food inflation was driven by higher prices of vegetables (32.4 percent) and sugar (38.8 percent) amid higher input costs and lower production, as weather disturbances in the previous months disrupted farmers’ planting calendar. In addition, the higher demand due to the holiday season pushed inflation up for restaurant and accommodation services at 7.0 percent.
National Economic and Development Authority (NEDA) chief and Economic Planning Secretary Arsenio Balisacan said protecting the purchasing power of Filipinos remained on top of the government’s priorities as domestic and global headwinds continue to be a challenge.
“As part of the 8-point Socioeconomic Agenda of the Marcos Administration and as laid out in the Philippine Development Plan 2023-2028, the government will continue to prioritize addressing the impact of inflation as it remains to be a challenge not only in the country, but throughout the globe,” Balisacan said.
He noted the timely decision of President Ferdinand Marcos Jr. to extend the validity of the reduced import rate duties on various products such as pork, rice, corn, and coal until December 2023.
Balisacan also highlighted the need to streamline disaster response and rehabilitation mechanisms to cope with the frequent weather disturbances experienced by the country.
Under this strategy, the government will push the use of technology to predict supply chain disruptions; adopt site-specific, timely, and simplified climate outlook and weather forecasts; improve biosecurity measures; and accelerate the development of vaccines to control livestock and poultry diseases.
“There is an urgent need to modernize the country’s agriculture and agribusiness to increase productivity and ensure that there is adequate, affordable, and nutritious food on the table of every Filipino,” Balisacan said.
Other commodity groups that recorded higher year-on-year increments in December 2022 were alcoholic beverages and tobacco, 10.7 percent; clothing and footwear, 3.9 percent; furnishings, household equipment and routine household maintenance, 4.8 percent; health, 3.1 percent; recreation, sport and culture, 3.9 percent; and personal care, and miscellaneous goods and services, 4.5 percent.
A lower annual increase was observed in the transport index at 11.7 percent in December 2022, from 12.3 percent in November 2022. Inflation for information and communication (0.7 percent), education services (3.6 percent), and financial services (0.0 percent) remained at their previous month’s rates.
Food inflation at the national level rose further to 10.6 percent in December 2022, from 10.3 percent in November 2022. In December 2021, food inflation was far lower at 1.6 percent.
The higher year-on-year growth rates in the indices of vegetables, tubers, plantains, cooking bananas and pulses at 32.4 percent; rice at 3.4 percent; and fruits and nuts at 7.6 percent were the main contributors to the increase in the December 2022 food inflation.
Mapa said there were noted increases in the prices of Christmas food items like ham and fruit cocktail that contributed to food inflation. Ham prices increased by 14.4 percent and fruit cocktail by 9.4 percent, he said.
Mapa also said there was a “substantial” contribution of onion prices in the food inflation. He said onion prices had a 0.3 percentage point contribution to the overall inflation for the month, which is the same rate for rice.
Mapa said the 32.4 percent food inflation in December was the highest since the 44 percent in February 1999. In November 2022, food inflation stood at 25.8 percent and 16 percent in October. “That [increase] was due to previous typhoons,” Mapa said.
Rizal Commercial Banking Corp. chief economist Michael Ricafort said aside from higher food prices, the 8.1 percent inflation in December was also triggered by the seasonal increase in demand due to increased holiday spending with no more COVID restrictions.
Ricafort further said the still relatively elevated inflation “would still support and justify further local policy rate hikes that could still possibly match future US Fed rate hikes to help stabilize the peso exchange rate and, in turn, overall inflation.”
ING Bank senior economist Nicholas Antonio Mapa said the elevated inflation rate would compel the Bangko Sentral ng Pilipinas “to remain hawkish in early 2023.”
“We could see BSP roll out additional rate hikes to match moves by the Fed. However, once the Fed carries out its much-anticipated ‘pivot,’ we believe Governor Medalla could consider a pause of his own as policy rates are currently already in restrictive territory,” Mapa said.
Inflation in the National Capital Region moved at a faster pace of 7.6 percent in December 2022 from 7.5 percent a month ago and 2.1 percent a year ago.
Inflation in the provinces also showed an uptrend of 8.2 percent in December 2022, from 8.0 percent in November 2022. In December 2021, it was recorded at 3.4 percent.
The December 2022 inflation was within the Bangko Sentral ng Pilipinas’ projection of 7.8 percent to 8.6 percent for the month.
The Development Budget Coordination Committee on Dec. 5, 2022, in consultation with the Bangko Sentral, decided to retain the current inflation target of 3.0 percent ± 1.0 percentage point (or 2 to 4 percent) for 2023 – 2024 and set the same inflation target for 2025 – 2026.
Earlier, BSP Governor Felipe Medalla said the inflation was expected to peak in December 2022. Medalla said there were uncertain events that could affect the annual increases in consumer prices for the month.
Medalla also did not rule out the possibility of more rate hikes this year.
Last Dec. 15, 2022, the Monetary Board raised the benchmark interest rate by 50 basis points to a more than 14-year high of 5.5 percent to prevent the second-round effects of inflation. Accordingly, the interest rates on the overnight deposit and lending facilities were set to 5.0 percent and 6.0 percent, respectively.
Medalla said the BSP’s latest baseline forecasts showed that average inflation was still projected to breach the upper end of the 2-4 percent target range for 2022 and 2023 at 5.8 percent and 4.5 percent, respectively.
However, the forecast for 2024 fell to 2.8 percent owing mainly to the further easing in oil prices, peso appreciation, and the slightly lower domestic growth outlook resulting in part from the BSP’s cumulative policy rate adjustments.
Albay Rep. Joey Sarte Salceda, chairman of the House ways and means committee, on Thursday said he sees “reason to be optimistic, although with some caution, that 2023 will see more acceptable inflation levels than 2022.”
“There is good reason to believe that oil, transport, and energyprices will be cheaper, or at least not inflate as quickly as they did in 2021 and 2022. Leading projections indicate a supply surplus
starting Q1 of 2023, as demand slows down and the US and other non-OPEC countries try to undercut the global cartel,” Salceda said.
Salceda added that “the world seems to have already adapted partly to the Russia-Ukraine conflict, with Europe being able to fill their reserves without Russian piped gas. So, oil and energy prices could stabilize.”
Salceda however warned that “the entirety of 2022 showed that the country’s food price issues are structural.”
Salceda pointed out that food inflation remained the biggest contributor to December 2022 inflation, at 10.2 percent, which he described as “extremely alarming.”
“And the highest price indices among commodities under food are vegetables at 32.4 percent and sugar at 38.8 percent, which we produce at a structural deficit but which are also very prone to smuggling.”
“In other words, you have smugglers who are not only not paying their fair share of taxes and duties; they are also profiting from high domestic prices.”
Salceda said the country’s “predicament with onion prices” shows broader systemic issues with the country’s food trade and production system.
“We now have the world’s most expensive domestic onion prices. We have some of the world’s most expensive domestic sugar prices. Why don’t we just allow legal importation, at least among industrial or large-scale users like restaurant chains for onions and food manufacturers for sugar? These prices are obvious bubbles that we can burst.”
Salceda pointed out that rice price inflation is the slowest among all food items in the CPI.
“With the proper farmer support mechanisms, we can protect domestic food producers without killing other industries that use raw agricultural goods. We posted record-high production of palay in 2021, and 2022 production is projected to go just slightly below that, despite high fertilizer and fuel costs,” Salceda said.
“I think it’s time to break the smuggling cartels among onion, meat, fish, and other key agri commodities, make the food trade regime more transparent and open to all. That should help lower food prices – since part of the artificially high prices in these products is that some smugglers are also oligopolies in the domestic market,” Salceda added.