The inflation rate rose to 3.5 percent in December, the fastest in 22 months, on higher prices of food products amid the holiday season, the Philippine Statistics Authority said Tuesday.
Data showed the December inflation picked up from 3.3 percent in November and 2.5 percent a year earlier. It was the biggest increase in consumer prices since inflation reached 3.8 percent in February 2019.
The National Economic and Development Authority said despite the upside risks, the full-year inflation rate in 2020 settled below the midpoint of the Bangko Sentral ng Pilipinas’ target range for the year.
It said inflation rate averaged 2.6 percent in 2020, slightly higher than 2.5 percent in 2019 and within the target range of 2 percent to 4 percent for the year.
“Even with the low inflation environment, there is still a need to improve supply chain efficiency to ensure that prices of essential goods and services remain stable,” said acting Economic Planning Secretary and NEDA director-general Karl Kendrick Chua.
The PSA said the uptrend in the inflation was brought about by the increase in the heavily-weighted food and non-alcoholic beverages at 4.8 percent in December, from 4.3 percent in November. It said annual increments were also higher in the indices of health at 2.6 percent; transport, 8.3 percent; and restaurant and miscellaneous goods and services, 2.5 percent.
Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the December inflation was within the BSP’s forecast range of 2.9 percent to 3.7 percent for the month.
“The latest inflation outturn brings the average full-year inflation for 2020 to 2.6 percent, which is well within the national government’s target of 2 of 4 percent. The BSP continues to expect inflation to settle within the target range over the policy horizon,” Diokno said in a message to reporters.
He said the recent uptrend in inflation was seen to be “largely transitory,” reflecting the short-term impact of weather disturbances. He said the overall balance of risks to future inflation continued to lean toward the downside, owing to the continued uncertainty caused by the COVID-19 pandemic on domestic and global economic activities.
“Nonetheless, upside risks emanate from the possibility of an early rollout of COVID-19 vaccines in the Philippines, which is expected to ease the existing lockdown measures and expand further operating capacity of the economy,” Diokno said.
Diokno said a stronger-than-expected world economic recovery as the vaccine is increasingly deployed in key economies abroad could present upward price pressures on global oil and food prices.
“The BSP stands ready to deploy its full arsenal of instruments as needed in fulfillment of its mandate to maintain price and financial stability conducive to sustainable economic growth,” he said.
ING Bank Manila senior economist Nicholas Mapa said the recent storm damage to agriculture productions forced prices for select vegetable to rise significantly with food inflation accelerating to 4.8 percent from 4.3 percent in November.
“The disruption and destruction from the string of destructive typhoons was enough to keep food prices elevated as food supply chains are restored. Transport costs also exerted upward pressure on the headline figure with higher fuel prices and expenses related to minimum health standards for transport resulted in an inflation rate of 8.3 percent for the sector,” Mapa said.
Mapa said with the recent inflation reading, real policy rates were now -1.5 percent and the BSP was not likely to cut policy rates anytime soon.
“With the central bank pushing up its 2021 inflation forecast to 3.2 percent, we do not expect BSP to adjust its main policy rate soon. However, Diokno did hint at a possible reduction to reserve requirements in the near term,” Mapa said.
Mapa said inflation would likely remain at 3.0 percent in the first quarter of 2021, with the BSP likely to keep policy rates unchanged.
NEDA cited the need to improve the infrastructure to keep the cost of transporting food and other commodities affordable.
“The imminent threat of natural calamities every year highlights the need for long-term solutions such as infrastructure investments that would improve flood control, water management and irrigation systems, reforestation, climate-resilient production and processing facilities, among others,” Chua said.
Chua encouraged the continued use of climate-resilient varieties of seeds and technologies.