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THE
magnitude of the uptick in prices in April surprised
even Bangko Sentral ng Pilipinas (BSP) Governor Amando
Tetangco Jr. on Tuesday as inflation punched past the
roof to 8.3 percent during the month from only 6.4
percent in March.
The
price surge pushed the four-month average well above the
official forecast of up to only 5.0 percent to 6.2
percent, and makes more likely the occurrence of the
dreaded “second-round impact” the BSP had been warning
about.
The
second-round impact pertains to further price surges as
a result of the expected wage and transport increases
that, in turn, respond to inflation.
Most
analysts in and out of government blamed spiraling food
prices for the unexpectedly high April inflation.
Director
General Augusto Santos of the National Economic and
Development Authority (Neda) said Tuesday food prices
rose “heftily” by 12 percent during the month, while the
National Statistics Office (NSO) put that at 11.5
percent.
Santos
attributed the rise in prices primarily to rice, which
rose by “24.6 percent.”
“For
rice alone, 11 out of 17 regions posted double-digit,
month-on-month inflation rates, with the highest coming
from
Central Visayas at 18.6 percent,” he said, adding that this is the
highest nationwide increase since the 11.5-percent rice
uptick from December 1998 to January 1999.
According to the NSO, the price of rice in the National
Capital Region (NCR) was steeper, registering a
38.4-percent year-on-year increase. It added that the
provinces also experienced increases in the price of
rice, but of a smaller magnitude at 22.7 percent, during
the same period.
The NSO
said that apart from rice, other food staples have been
increasing: corn by 19.3 percent, cereal preparations by
13.9 percent, dairy products by 12.4 percent, eggs by
8.4 percent, fish by 8.8 percent and meat by almost 10
percent.
British-owned global bank HSBC also cited similar surges
in the utilities component (which includes light, water
and fuel) of prices, a reflection of higher energy
costs.
The
utilities component accelerated also by 8 percent during
the month from 6.2 percent previously, the lender said.
“This
suggests that price pressures are not only confined to
the traditional headline components of food and energy
and are far more broad-based, reflecting robust domestic
demand growth and the lagged effect of high money,” the
lender added.
The
consensus early on, based on a survey by HSBC, was for
inflation not topping 7 percent.
Still,
Tetangco, in
Madrid
for the Asian Development Bank’s annual governors’
meeting, said the inflation in April was within their
projections for the month.
“The
continued uptick was as projected although the magnitude
was higher than expected,” he said in a text message.
Tetangco
insisted the price surge was “brought about primarily by
increases in all commodity groups in the consumer-price
basket.”
“The
elevated prices of oil and nonoil goods continue to pose
challenges to policymakers, although for some
commodities, supply responses, i.e., higher production,
should eventually temper the price spikes,” he said.
“As
so-called base effects dissipate and as measures to
stabilize supply take root, we remain convinced that the
price movements will revert to manageable levels over
the policy horizon,” Tetangco said.
The base
effect pertains to the moderating impact of previously
high inflation rates on the current price of commodities
and goods.
This
adds a sense of perspective for those who tend to
despair or panic—assuring them that in the next 18 to 21
months prices would revert to more affordable levels for
most Filipinos.
Tetangco’s greatest fear was for the price surges
encourage policymakers to give in to populist demand for
short-term measures, such as unduly high wage and
transport-fare hikes in complete disregard of
productivity considerations.
Such
reactions, while politically expedient, tend to push the
entire economy into a price spiral for which
monetary-policy adjustments may no longer be sufficient
or quick enough.
HSBC
said the base effects, the rising food prices and
further hikes in gasoline prices would likely push
headline inflation higher in the coming months and
likely peak “at over 9 percent.”
As a
result, forecast inflation this year should stand at
around 6.5 percent or well above the official forecast
ceiling of only 5 percent.
Also as
a result, the policymaking Monetary Board of the BSP was
similarly seen to abandon its neutral monetary stance at
present and adopt a 25-basis upward adjustment in its
lending rates by around June followed by two more
similar hikes over the next six months.
Such
adjustments should lift the current BSP borrowing rate
of only 5 percent to 5.75 percent by year’s end, HSBC
said.
As for
Tetangco, he simply vowed to be on sustained lookout for
second-round pricing pressures and to act decisively “to
ensure that inflation expectations remains well
anchored.”
Well-anchored inflation expectations allow both
borrowers and lenders to plan ahead of time according to
their credit or investment requirements. |
