Philippines’ core inflation clocks fastest increase since 1999

PHILIPPINES’ core inflation bolted to the fastest pace in 24 years, a sprint that will likely convince policymakers to retain their tightening bias even as the headline measure slowed.

The core gauge, which strips volatile food and energy costs, rose 7.8 per cent in February from a year ago, quickening from 7.4 per cent the prior month and clocking in the fastest increase since March 1999, according to the Philippine Statistics Authority.

Headline inflation last month was 8.6 per cent year-on-year, a tad slower from 8.7 per cent in January which was the most since 2008 and against a median estimate of 8.9 per cent, the statistics agency said. That’s the first slowdown in the overall print since August. Compared to the previous month, price growth was unchanged.

Bangko Sentral ng Pilipinas (BSP), which has overseen the nation’s most-aggressive tightening in two decades since May 2022, said it “remains prepared to adjust its monetary policy settings as necessary to prevent inflation expectations from becoming disanchored and safeguard the inflation target over the policy horizon”.

“Core inflation continues to accelerate. This just showcases how broad-based inflation has become and second order effects are now pervasive,” said Nicholas Mapa, an economist at ING Groep in Manila. “This is what happens when inflation remains elevated for so long, it devolves into a situation where inflation begets inflation. Thus, our call that inflation will be sticky in 2023.”

Transport was the sole driver of the headline inflation downtrend in February, posting a 9 per cent rise from 11.1 per cent the previous month, the statistics agency said.

“There are still other challenges particularly core inflation,” said the nation’s chief statistician Dennis Mapa. “Prices of low volatility items are a bit sticky and continuously increasing, and this would basically put some challenges to our numbers in March,” he said.

BSP sees inflation staying above the 2-4 per cent target until early fourth quarter. The latest view is still largely in line with what governor Felipe Medalla said last month that price gains should decelerate to 4 per cent by November or December.

The benchmark stock index rose 0.7 per cent at 10.32 am local time, set for a fifth day of advance while the peso weakened against the dollar for a second day.

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Elevated inflation in the Philippines contrasts trends in other South-east Asian nations including Malaysia and Indonesia, where easing prices allowed a pause in monetary tightening. BSP has raised borrowing costs by 400 basis points since May last year.

“The government continues to implement calibrated and swift measures to arrest inflation and its impact, including addressing supply issues especially in food products,” Arsenio Balisacan, head of the National Economic and Development Authority, said after the data release. BLOOMBERG