Inflation in May 2022 shot up to a 42-month high of 5.4 percent from 4.9 percent a month ago, driven mainly by higher prices of food, non-alcoholic beverages and transport, the Philippine Statistics Authority (PSA) said Tuesday.
The May inflation was the highest since the 6.1 percent registered in November 2018, and brought the five-month rate to 4.1 percent, slightly higher than the upper end of the target range of 2 to 4 percent for the year.
Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said the inflation rate was consistent with the BSP’s expectations.
“The inflation path continues to be driven primarily by supply-side factors amid volatile global commodity prices,” Diokno said. “Supply chain disruptions could also contribute to inflationary pressures, and thus warrant closer monitoring to enable timely intervention to arrest the emergence of further second-round effects.”
“The latest assessment also indicates that domestic economic activity has gained stronger traction with the easing of mobility restrictions. However, heightened geopolitical tensions, a resurgence in COVID-19 infections in some countries along with faster-than-expected monetary policy normalization in advanced economies have clouded the outlook for global economic growth,” Diokno said.
He said the balance of risks to the inflation outlook leaned toward the upside for both 2022 and 2023. The upside pressures emanate from the potential impact of higher oil prices, including transport fares, as well as the continued shortage in domestic pork and fish supply.
“Meanwhile, downside risks are linked mainly to the potential impact of a weaker- than-expected global economic recovery,” Diokno said.
Economic Planning Secretary Karl Kendrick Chua said the issuance of Executive Order 171 and the government’s fuel subsidy program would help ease the impact of global inflationary pressures.
“The Russia-Ukraine conflict has disrupted the global supply chain and elevated commodity prices, particularly for fuel.
We have seen how a single crisis can set us back, so the Duterte administration has pursued both short- and long term interventions to increase the resilience of our domestic economy against external shocks,” Chua said.
Price increases for both food and non-food commodity groups contributed to the increase in headline inflation. Food inflation further accelerated to 5.2 percent in May from 4.0 percent in April due to faster inflation rates for vegetables, fish, and meat.
Corn inflation remained high at 24.4 percent due to limited global supply. In contrast, rice inflation remained stable and decelerated to 1.5 percent amid the implementation of the Rice Tariffication Law and EO No. 135, which diversified the country’s rice sources.
Meanwhile, non-food inflation continued to increase to 5.6 percent in May from 5.4 percent in April, driven by transport inflation which increased to 14.6 percent in May from 13 percent in April due to high world oil prices. Private transport inflation accelerated to 47.9 percent from 44.4 percent, while public transport remained muted at 1.6 percent due to fare regulation.
Household inflation for electricity, gas, and other fuels also remained high even with a slight deceleration at 18.8 percent from 19.9 percent.
To help cushion the impact of higher fuel prices on the most vulnerable, the government has increased the total budget for targeted subsidies to P6.1 billion. As of June 1, 2022, over 180,000 public utility vehicle (PUV) drivers and operators have received their P6,500 fuel subsidy under the Pantawid Pasada program. At the same time, more than 158,000 farmers and fishermen are also set to receive P3,000 as fuel discounts.
To facilitate the entry of more goods at lower prices, President Duterte issued EO No. 171 to modify tariff rates for pork, corn, rice, and coal. This is among the key recommendations of the Economic Development Cluster in addressing the inflationary impact of the Russia-Ukraine conflict.
EO No. 171 extends the validity of EO 134 and 135, which lowered the most favored nation (MFN) tariff rates for the importation of pork and rice. The EO also reduces MFN tariff rates for corn to 5 percent in-quota and 15 percent out-quota, since corn accounts for more than 50 percent of the total production cost of large-scale broiler and swine farms.
To help maintain or lower electricity prices, EO No. 171 also temporarily eliminates the 7 percent MFN import tariff rate on coal as it is an important raw material in the generation of electricity.
“These temporary measures are expected to increase our food supply and ease higher electricity costs in the short-term,” Chua said.
Michael Ricafort, chief economist of Rizal Commercial Banking Corp., said the proposed higher taxes or new taxes for the coming months could lead to some pickup in prices and overall inflation, as an unintended consequence, as part of the efforts to narrow the country’s budget deficit, temper the growth in national government’s outstanding debt, and bring down the debt-to-GDP ratio to more sustainable levels and conductive to relatively favorable credit ratings.
“Sources of second-round inflation effects include higher wages, possible hikes in transport fares that could lead to higher prices of other affected goods and services in the economy,” Ricafort said.
He said some regional wage boards already approved minimum wage rate hikes (at least 6 percent for Metro Manila) effective as early as June 2022, already leading to some price increases in some products and services to reflect the pass-on effects during the month.
“Thus, inflation could pick up further starting June 2022 and with some lagged effects in the coming weeks or months, as could be offset by competition and pricing power as the economy is still reeling from the adverse effects of the pandemic,” Ricafort said.
In the National Capital Region, inflation increased further to 4.7 percent in May 2022, from 4.4 percent in April 2022. In May 2021, inflation in the region was observed at 2.6 percent.
The higher inflation in the region was mainly due to the higher annual increase in the food and non-alcoholic beverages index at 4.6 percent in May 2022, from 3.4 percent in the previous month. Also contributing largely to the uptrend of inflation in NCR was transport with an inflation rate of 13.8 percent in May 2022, from 12.3 percent in the previous month.
Annual hikes were also higher in the indices of alcoholic beverages and tobacco, 6.5 percent; clothing and footwear, 1.2 percent; health, 1.9 percent; recreation, sport and culture, 1.0 percent; restaurants and accommodation services, 3.3 percent; and personal care, and miscellaneous goods and services, 2.2 percent.
On the other hand, annual increases slowed down in the indices of housing, water, electricity, gas and other fuels at 5.2 percent; furnishing, household equipment and routine household maintenance, 2.6 percent; and information and communication, 0.4 percent.
Following the trend of the national and NCR, inflation in the provinces was higher at 5.5 percent in May 2022, from 5.1 percent in April 2022.
Except for Central Visayas and Northern Mindanao, all regions in areas outside NCR had higher inflation in May 2022. The highest inflation during the month remained in the Cordillera Administrative Region at 6.9 percent, while the lowest was still in Bangsamoro Autonomous Region in Muslim Mindanao at 2.4 percent.
On May 19, 2022, the Monetary Board hiked by 25 basis points the record-low 2 percent policy rate to 2.25 percent, to rein in the inflation rate.
The policy rate increase was the first time in 18 months since it was cut by 25 basis points to 2 percent in November 2020.
Accordingly, the interest rates on the overnight deposit and lending facilities were raised to 1.75 percent and 2.75 percent, respectively.
In a virtual Palace press briefing, acting presidential spokesperson and Communications Secretary Martin Andanar said the government continues to monitor the prices of basic commodities.
He added that the government’s fuel subsidy program would help ease the impact of global inflationary pressures.
Andanar added that the Service Contracting Program (SCP) will benefit both PUV drivers and commuters.
Under the SCP, PUV operators will be contracted through an agreement based on a plan prepared by the Land Transportation Franchising and Regulatory Board. PUV drivers receive regular performance-based subsidies based on the number of trips made per week, regardless of the number of passengers.
Andanar noted that the Department of Transportation has extended the free rides on the Metro Rail Transit Line 3 until June 30 this year.
He said workers in Metro Manila have been receiving an additional P33 to their current daily pay, following the recent decision of the regional tripartite wages and productivity board to grant the minimum wage hike.
