Inflation Preview: Slowdown amid a foodfest 

Subdued rise in food costs offset oil- and electricity-price hikes this month, allowing inflation to remain well within the Bangko Sentral ng PIlipinas (BSP)’s target band.

We forecast headline inflation to slow to 2.6% year-on-year in February, from the 2.9% logged in January.

Bountiful spread

Food inflation eased just in time to offset increases in the energy basket. Effects from weather phenomena such as typhoons and El Niño began to fade, as costs of most food groups increased at slower rates on better conditions for agricultural produce.

Vegetable prices likely eased in a material way  while rice prices continued to decrease, although at a slower rate. Meat prices also improved, though the increase in prices of fish accelerated slightly.

Currency jolt

Metro Manila electricity rates grew month-on-month (MoM) after the peso’s depreciation pushed up dollar-denominated costs of independent power producers and suppliers.

Although the costs may have been offset from lower charges from the Wholesale Electricity Spot Market, the price hike results in higher electricity rates on a year-on-year basis.

A little burn

Oil costs moved sideways throughout the month – mixed price swings that resulted in a month-on-month rise were tempered by one price rollback. The movements were largely due to uncertainties surrounding US tariffs as well as sanctions on Russian and Iranian oil.

Still, the relatively modest price hikes were not enough to raise prices substantially. As oil prices remain lower year-on-year, we expect pump prices to have impacted less on inflation in February.

Metrobank’s take 

The supply-side pressures this month may not have been enough to raise inflation beyond the 2%-4% target of the BSP, even decelerating from the previous month.

The target-consistent prints seen in the last few months may be enough to nudge the BSP to resume its easing cycle by delivering a rate cut at the next Monetary Board meeting in April.

(Disclaimer: This is general investment information only and does not constitute an offer or guarantee, with all investment decisions made at your own risk. The bank takes no responsibility for any potential losses.) 

YOSHITAKA HIRAKAWA is a Research Officer of the Research and Market Strategy Department, Institutional Investors Coverage Division, Financial Markets Sector, at Metrobank. He holds a Bachelor’s in Management Engineering from Ateneo de Manila University. With a background in data-driven decision making and quantitative methods, he aims to provide meaningful insights. Hungry for adventure, he constantly seeks new sights, sounds and experiences, from cliff jumping to trying new cuisines.