PH braces for inflation spike

Even as inflation eased to 2.6 percent in February, the Philippines is bracing for faster-than-expected increases in consumer prices as China’s manufacturing sector reels from the impact of the COVID-19 outbreak.

Deputy National Statistician Lourdines dela Cruz of the Philippine Statistics Authority (PSA) told a press briefing on Thursday that the headline inflation rate last month slowed from 3.8 percent a year ago and 2.9 percent in January, bringing the two-month average to 2.8 percent, or within the government’s 2-4 percent target for 2020.

Dela Cruz attributed the decline to slower increases in transport, alcoholic beverages and tobacco as well as housing, water, electricity, gas and other fuels.

In the case of rice, PSA Assistant National Statistician Divina Gracia del Prado said the Filipino staple posted its 10th straight month of deflation as prices fell 7.3 percent year-on-year.

While the coronavirus continued to spread in and out of China last month, Del Prado said the outbreak did not significantly jack up prices of health supplies like rubbing alcohol.

Last month’s lower transportation costs and fuel prices came on the back of declining global oil prices due to slower demand for international travel as well as supply chain disruptions in China, which affected manufacturing sectors across the globe.

The Philippines’ top source of the imported capital and consumer goods last year was China, whose purchasing managers’ index (PMI)—a proxy for manufacturing growth—fell to a record low 35.7 last month.

A March 4 report of the UN Conference on Trade and Development titled “Global trade impact of the Coronavirus (COVID-19) Epidemic” showed that the Philippines would be the 18th most affected economy by a reduction in Chinese supply of intermediate inputs last month as 13 domestic industries could experience export declines worth $300.4 million.

“China’s PMI dive will mean lower supply of some goods, which could turn inflationary for select baskets. Overall price growth can be offset if we consider noncore where we see lower fuel prices and ample supply of food. In sum, there could be inflationary tendencies but not too drastic as we saw in 2018,” Security Bank chief economist Robert Dan Roces told the Inquirer.

For Socioeconomic Planning Secretary Ernesto Pernia, the disruption in global supply chain would drive producers to raise local supply and cost of production could decline with fuel prices dropping.

“On the other hand, with Chinese supply scarcer, consumers will tend to shift to locally produced goods,” Pernia told the Inquirer.

But RCBC chief economist Michael Ricafort warned that the shift to higher-priced alternatives could be passed on to consumers and lead to higher prices.“Prudent monetary actions should also come into play where authorities should be able reverse its tightening stance further,” Roces said.