By means of Luisa Maria Jacinta C. Jocson, Reporter
INFLATION accelerated for the third straight month in December amid faster increases in food, utility and transportation prices, the Philippine Statistics Authority (PSA) said.
Preliminary data from the PSA showed the consumer price index (CPI) rose to 2.9% year-on-year in December from 2.5% in November, but was slower than the 3.9% a year earlier.
It also fell within the 2.3%-3.1% forecast for the month from the Bangko Sentral ng Pilipinas (BSP).
The latest inflation pressure is slightly higher than the average estimate of 2.7% in a Business world poll among 13 analysts.
The December print put inflation at 3.2% in 2024, in line with the BSP forecast. This was the first time since 2021 that full-year inflation fell within the central bank’s target of 2-4%, when inflation averaged 3.9%. It was also the slowest since 2.4% in 2020.
“On balance, the inflation outlook remains within target and well-anchored inflation expectations continue to support the BSP’s shift towards a less restrictive monetary policy. Nevertheless, the monetary authority will continue to monitor the situation closely emerging upside risks to inflation, in particular geopolitical factors,” the central bank said in a statement.
PSA data shows core inflation, which excludes volatile food and fuel prices, was 2.8% in December – faster than the previous month’s 2.5% but slower than 4.4% a year ago.
Over the year, core inflation averaged 3%, compared with 6.6% in 2023.
National statistician Claire Dennis S. Mapa said December inflation was mainly driven by the housing, water, electricity, gas and other fuel index, which accelerated to 2.9% from 1.9% a month earlier and the year before to 1.5%.
The index was responsible for more than half, or 52.9%, of the upward trend in inflation during the month.
One of the key drivers was electricity, which rose to 1.6% in December, compared with the 2.5% contraction in November and the 7.8% decline a year ago.
In December, Manila Electric Co. (Meralco) increased the overall rate by P0.1048 per kilowatt hour (kWh) to P11.9617 per kWh, compared to P11.8569 in November.
The PSA also cited faster rental inflation at 2.4% from 2.2% a month ago, and liquefied petroleum gas or LPG at 7.8% from 6.7%.
The PSA also cited transportation as one of the main sources of faster inflation in December.
Transport inflation rose to 0.9%, a reversal of the 1.2% decline in November and faster than the 0.4% decline a year earlier.
Mr Mapa said the rise in transport inflation was due to the slower deceleration in petrol (-2.4% from -8%) and diesel (-2.9% from -9.4%) prices.
In December, pump price adjustments amounted to a net increase of P1.40 per liter for gasoline and P1.45 per liter for diesel, while kerosene prices saw a net decrease of P0.80 per liter.
Sea passenger traffic increased from 17.1% in November to 71.9% in December. Mr Mapa said this was due to seasonal factors during the festive season.
RICE PRICES
Meanwhile, the heavily weighted index for foods and non-alcoholic beverages remained stable at 3.4% during the month. Food inflation also remained stable at 3.5%.
“The good news is that rice inflation is decreasing. In fact, rice inflation is expected to turn negative in January,” Mr Mapa added.
Rice inflation slowed to 0.8% from 5.1% in November and 19.6% a year earlier. Rice is usually the largest contributor to headline inflation, but has been on a downward trend recently since the government cut rice import duties in July.
However, faster increases were recorded for vegetables, tubers, plantains, cooking bananas and legumes, which rose to 14.2% from 5.9% a month ago.
Mr Mapa said the price increase of tomatoes rose to 120.8% in December from 31.3% in November. It was also responsible for 0.3 percentage points (ppt) of overall inflation.
The average price for tomatoes in December was €147.23 per kilo, an increase compared to €84.64 per kilo a year ago.
Mr Mapa said higher vegetable prices could partly be attributed to storm damage in recent months.
“Of course that has an effect. It is not unique to this month of December: every time there is a typhoon, it is the vegetable prices that really rise. Add to this the high demand (for vegetables) during the festive season,” he added.
Data from the PSA shows that inflation for the bottom 30% of income households fell to 2.5% from 2.9% a month earlier and to 5% the year before. So far, inflation for the bottom 30% has averaged 4.2%.
Inflation in the National Capital Region (NCR) accelerated to 3.1% in December, up from 2.2% in November and 3.5% a year ago. For 2024, inflation in NCR averaged 2.6%.
Outside NCR, consumer prices rose to 2.9%, up from 2.6% a month earlier and 4% the year before, bringing the average to 3.4% in 2024.
“We are seeing the fruits of our efforts to reduce inflation within the government’s target range of 2-4%,” BSP Governor Eli M. Remolona Jr. said in a statement.
National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan said full-year average inflation in 2024 is a “significant improvement” compared to 2023.
“Despite the risks we faced throughout the year, our collective efforts to moderate inflation have been largely successful. We will build on this momentum as we commit to keeping inflation within our target range in 2025,” he added.
In a separate statement, the BSP said the latest inflation figure is “consistent with the BSP’s assessment that inflation will remain anchored in the target range over the policy horizon.”
The BSP expects inflation to average 3.3% this year and 3.5% in 2026. both within the 2-4% target.
However, it said the balance of risks to the inflation outlook is still tilted to the upside, citing “potential upward adjustments in transportation tariffs and electricity tariffs.”
“The impact of lower import tariffs on rice remains the main downside risk to inflation. Domestic demand is likely to remain strong but subdued. Private domestic spending is expected to be supported by declining inflation and improving labor market conditions,” the BSP said.
“However, downside risks in the external environment could materialize and dampen economic activity and market sentiment,” it added.
Amid these risks, the BSP said that “complacency is not an option.”
“Prices of certain commodities may increase due to supply-side factors such as geopolitical tensions and adverse weather conditions,” it added.
INSIDE GOAL
Analysts still see inflation firmly within the 2-4% range.
“For now, we maintain our consensus forecast that average annual inflation will decline further this year to 2.4% from 3.2% in 2024, even though risks to this projection are tilted to the upside,” Pantheon said Macroeconomics Chief Emerging Asia. Economist Miguel Chanco said.
Chinabank Research said in a note that bad weather poses a risk to food prices during the expected La Niña this quarter.
“Nonetheless, barring any unexpected shocks, we expect inflation to remain within target going forward,” it added.
Michael L. Ricafort, chief economist of Rizal Commercial Banking Corp., said there could still be “relatively benign” inflationary pressures through early 2025, which would justify further policy easing.
Last year, the central bank made a total of 75 basis points (bps) of rate cuts, bringing the benchmark rate to 5.75% by year-end.
“Still, the BSP is likely to remain vigilant against upside risks to prices. With inflation still expected to remain within target this year, we believe the BSP has room to continue the gradual pace of monetary policy easing,” Chinabank said.
She expects the BSP to implement 75 basis points of cuts this year to bring the policy rate to 5%.
The first policy of the Monetary CouncilThe annual review of the year is on February 20.