Inflation snaps six-month downtrend, accelerates at 5.3% in August 2023

Inflation snapped its six-month deceleration streak in August due to faster increase in food prices, mainly rice and vegetables, as well as higher transport costs, the Philippine Statistics Authority (PSA) reported on Tuesday.

At a press briefing, National Statistician and PSA chief Claire Dennis Mapa said inflation — or the rate of increase in the prices of consumer goods and services — stood at 5.3% in August 2023, faster than the 4.7% rate seen in July but slower than the 6.3% in August 2022.

Last month’s rate fell within the Bangko Sentral ng Pilipinas’ (BSP) projection range of 4.8% to 5.6%. 

The inflation print in August ended the downtrend seen in the past six months beginning February, from a peak of 8.7% in January.

The year-to-date inflation rate stood at 6.6%, still above the government’s 2% to 4% target ceiling.

Despite the acceleration last month, the BSP said that “inflation is still projected to decelerate back to within the inflation target by the fourth quarter of 2023.”

Main contributors

“Ang pangunahing dahilan ng mas mataas na antas ng inflation nitong Agosto 2023 kaysa noong Hulyo 2023 ay ang mas mabilis na pagtaas ng presyo ng Food and Non-Alcoholic Beverages,” Mapa said.

(The main contributor to the faster inflation rate in August 2023 compared to July 2023 was the faster increase in the prices of Food and Non-Alcoholic Beverages.)

The Food and Non-Alcoholic Beverages index saw an inflation rate of 8.1%, up from 6.3% in July and contributed 60.5% to the overall acceleration last month.

“Ang nag-ambag nang malaki sa pagtaas ng inflation ng Food and Non-Alcoholic Beverages ay ang mas mabilis na pagtaas ng presyo ng mga Cereal and Cereal Products, partikular ang bigas; Vegetables, Tubers, Cooking Bananas at iba pa, gaya ng kamatis; at Fish and Other Seafood, tulad ng tilapia,” Mapa said.

(The top contributors to the higher Food and Non-Alcoholic Beverages inflation was the faster increase in the prices of Cereal and Cereal products, particularly rice; Vegetables, Tubers, and Cooking Bananas, among others such as tomatoes; and Fish and Other Seafood, like tilapia.)

In a statement, National Economic and Development Authority (NEDA) Secretary Arsenio Balisacan said the rice inflation rate accelerated to 8.7% from 4.2% in July.

“The expected reduction in rice production due to El Niño and the export ban recently imposed by major rice exporters such as India and Myanmar led to higher international rice prices. In addition, the alleged hoarding incidents, artificial shortage, and speculative business decisions of market players may have put further upward pressure on the domestic retail price of rice,” Balisacan said.

Vegetable inflation, meanwhile, sped up to 31.9% from 21.8% “due to production losses from the enhanced monsoon rains and Super Typhoon Egay.”

Likewise, faster increments were seen in Fish and Other Seafood at 6.9% from 4.5% month-on-month.

Overall food inflation, which tracks price movements in a “basket” of foods commonly purchased by households, moved up faster at 8.2% from 6.3%.

Also contributing to the inflation acceleration in August was the Transport index, with a rate of 0.2% from -4.7% in July and contributed 39.4% to the overall uptrend.

Mapa said the higher inflation print for Transport was due to the slower decline in the prices of gasoline, which saw an inflation rate of -8.7% from 23.2% and diesel with a rate of -16.1% from -33.9%.

“Despite the ongoing challenges we encounter, such as severe weather conditions and trade limitations imposed by other nations, our objective remains to achieve an inflation rate between 2% and 4% by the year’s end,” said Balisacan. 

Gov't interventions

The country’s chief economist emphasized the importance of providing comprehensive assistance to rice and vegetable farmers to help them increase their production amid the adverse effects of continuous rains last month and the anticipated impact of El Niño on domestic rice and vegetable production in the first quarter of 2024.

Balisacan said the Department of Agriculture and the National Food Authority “augment support to farmers in the drying and milling palay in the upcoming harvest season.”

The NEDA chief also recommended hastening the implementation of programs to facilitate the swift recovery of production in typhoon-affected areas.

In particular, he said the government needs to accelerate the rollout of the Food Stamp Program (FSP) of the Department of Social Welfare and Development, which will provide P3,000 worth of food credits to target beneficiaries each month for six months.

Other government support to consumers includes the continued implementation of Kadiwa stores, targeted cash transfers, and the Department of Trade and Industry’s (DTI) Diskwento Caravan, according to Balisacan.

He also called for a review of the existing tariff levels on rice to help lower the cost of this staple for consumers while considering the impact of this intervention on local producers.

“To partially counterbalance the rise in global prices and alleviate the impact on consumers and households, we may implement a temporary and calibrated reduction in tariffs,” Balisacan said.

Moreover, he said that to ensure the availability of affordable food and reduce transport costs, President Ferdinand "Bongbong" Marcos Jr. recently approved the three-year food logistics action agenda of the DTI. 

Inflation in and outside NCR

Tracking the national trend, inflation rate in Metro Manila — the Philippines’ economic center — increased to 5.9% from 5.6%.

This was mainly due to the increase in Food and Non-Alcoholic Beverages index at 8.6% from 6.4% in July, followed by Transport with a rate of 1.4% from a deceleration of 3.2% seen in the prior month.

For areas outside the National Capital Region (NCR), inflation clocked in at 5.2% in August from 4.4% in July. This was also due to the faster increase in the Food and Non-Alcoholic Beverages index at 8% from 6.2% month-on-month, similar to the the national trend.

Twelve regions in areas outside NCR had higher inflation rates in August, according to the PSA.

On the contrary, two regions recorded lower inflation rates during the month, while the remaining two regions moved at the same rate as in the previous month.

Region III (Central Luzon) had the highest inflation rate during the month at 7%, while Region VIII (Eastern Visayas) had the lowest inflation rate at 3.1%.

Inflation for bottom 30%

Meanwhile, inflation felt by the bottom 30% income households also increased at a rate of 5.6% from 5.2% month-on-month, bringing the year-to-date inflation for the income group at 7.4%.

The main driver to the increase of the inflation for the income bracket was the higher year-on-year growth in the heavily-weighted Food and Non-Alcoholic Beverages at 7.7% from 6.1% in July.

This was followed by Transport, which saw an increase of 1.1% from a deceleration of 3% in the prior month.

Food inflation for the income group was also swifter in August at 7.7% from 6.1% in July due to the faster increase in rice prices at a rate of 91% from 4.5% in July.

Moreover, Vegetables, Tubers, Plantains, Cooking Bananas and Pulses with 23.6% inflation from 17.3% in the prior month contributed to the faster food inflation for the income group.

Fish and Other Seafood also contributed to the upward trend of the food inflation for the bottom 30% income households in August with 6.3% annual growth rate from 4.4% in July.

Inflation outlook

The BSP said that “the balance of risks to the inflation outlook continues to lean towards the upside owing to the potential impact of additional transport fare increases, higher-than-expected minimum wage adjustments in other regions, persistent supply constraints for key food items, El Niño weather conditions, and possible knock-on effects of higher toll rates on prices of key agricultural items.”

“Meanwhile, the impact of a weaker-than-expected global economic recovery remains the primary downside risk to the outlook,” the central bank said.

The BSP said it stands ready to adjust the monetary policy stance as necessary to prevent the further broadening of price pressures as well as the emergence of additional second order effects in view of the persistent upside risks to the inflation outlook.

The central bank added it continues to support the timely and effective implementation of non-monetary government measures to mitigate the impact of persistent supply-side pressures on inflation. —KBK, GMA Integrated News