Inflation uptick feared anew amid Ukraine crisis

The Ukraine conflict may bring to a halt the downtrend in inflation as soaring oil prices in the global market would impact on local consumer prices, economists said.

ING Bank senior economist Nicholas Mapa said tensions between Russia and Ukraine would ratchet up pressure on inflation in the Philippines.

Rizal Commercial Banking Corp. chief economist Michael Ricafort also said the immediate impact would be on higher oil prices, considering that Russia is a major energy producer and supplier.

The price of the international benchmark Brent crude hit a seven-year high of almost $100 per barrel after Russia deployed troops to eastern Ukraine.

Inflation in the Philippines has been easing for five consecutive months, cooling to three percent in January.

Mapa now expects inflation to rise to 3.2 percent in February, further sapping the momentum in domestic consumption.

“The BSP (Bangko Sentral ng Pilipinas) is forecasting inflation at 3.7 percent for 2022, so I believe we could see inflation threaten the upper end of the BSP’s inflation target band as soon as the end of the second quarter,” Mapa said.

“A protracted period of elevated energy prices will definitely filter through to higher imported energy inflation, with the double whammy of fomenting Philippine peso depreciation pressure as firms need more dollars to cover pricier oil,” he said.

Ricafort, for his part, said inflation would remain at the three percent level due to the normalization of the inflation base.

But he warned that potential upticks could be expected if global oil prices breach $100 per barrel.

“That could partly slow down economic recovery prospects, especially if oil prices remain elevated. That could eat up on disposable income that would otherwise go to other consumer and business spending in the economy,” Ricafort said.

Mapa said the the BSP has identified $110 per barrel oil price as a potential tipping point for it to truly get frazzled by the current oil price spike.

“With Russia moving into rebel-controlled territory in Ukraine, we could be closer to that than previously expected,” Mapa said.

Source: Philstar

ING Bank sees inflation breaching 5%

Inflation is likely to move past five percent this month after accelerating to a 32-month high in August as price pressures heat up anew due to elevated food and oil prices, according to Dutch financial giant ING Bank.

Nicholas Mapa, senior economist at ING Bank Manila, said the September inflation may pick up further after kicking up to 4.9 percent in August from four percent in July.

“We expect inflation to move past five percent as recent and approaching storm systems will undoubtedly figure into this month’s fruit and vegetable prices,” Mapa said.

The last time inflation breached five percent was in December 2018 at 5.1 percent.

Mapa said fish and meat prices are likely to remain elevated, while energy costs are also expected to stay up as global crude oil prices stayed close to $70 per barrel.

He also said utility companies and retail fuel distributors have recently announced additional rounds of price increases, all adding to the supply side pressure on headline.

Although the pickup in imports may be a sign of renewed demand, the economist explained this also reflects an improvement in domestic production which could help increase the supply of basic goods and services.

“Despite this, the price pressures appear to be accelerating at the worst possible time with base effects unfavorable in September,” Mapa said.

Inflation averaged 4.4 percent from January to August as monthly inflation has been breaching the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP).

Mapa said inflation breached the BSP’s target anew in August with cost-push factors the dominant force behind the resurgence in price gains. He said vegetable, fish and meat prices all conspired to push food inflation to 6.5 percent.

Mapa said crop damage induced by inclement weather in August forced vegetable prices up by 15.7 percent and fish prices higher by 12.4 percent, while African swine fever (ASF) kept meat prices elevated at 16.4 percent.

To make matter worse, he said pricier global crude oil prices have found their way to domestic pump prices at 17.8 percent and utilities with eight percent as LPG costs and Meralco bills are on the rise.

Despite a modest pickup in demand relative to lockdowns last year, Mapa said it is clear that the main factor behind the recent surge is emanating from cost-push factors such as more expensive vegetables, meat and energy related products.

The economist said the BSP continues to face a dilemma, caught between a rock and hard place as monetary authorities attempt to navigate renewed cost-push price resurgence amid an economic recession.

“The central bank has been very aggressive in delivering stimulus although transmission has remained soft with commercial banks not deploying the bevy of liquidity released via monetary easing,” Mapa said.

Adding an angle of complication is the recent depreciation spell of the peso in the months leading to the eventual taper by the US Federal Reserve that continues to add fuel to the inflationary fire.

Source: Philstar