By Katherine K. Chan, A reporter
HIGH FUEL, electricity, and The price of rice, along with the weakening of the peso, made inflation the fastest in almost two years, the Bangko Sentral ng Pilipinas (BSP) said on Tuesday.
In its latest inflation forecast for next month, the BSP said inflation is likely to have remained between 3.1% and 3.9% in March, faster than the 1.8% clip last year and 2.4% in February.
At the high end of the forecast, inflation is likely to rise to its fastest peak in two years or from 4.1% in November 2023. It will also match the headline inflation posted in May 2024.
At that time, finally, inflation will be the fastest print in 19 months or from a clip of 3.3% in August 2024.
The central bank said cheaper prices for vegetables, fish and meat were likely to ease price pressures during the month, but rising costs of fuel, electricity and rice weighed on the headlines.
“Inflation risks have increased with rising price pressures from the sharp increase in domestic fuel prices, higher rice prices, higher electricity prices in Meralco’s supply areas, and the depreciation of the peso,” the statement said.
Local pump prices have risen since the US and Israel launched strikes against Iran in late February.
In March, fuel retailers increased pump prices to P43.50 per liter of gasoline, P67.35 per liter of diesel and P70.90 per liter of kerosene.
Meanwhile, Manila Electric Co. (Meralco) raised electricity rates by 64.27 centavos per kilowatt-hour (kWh) to P13.8161 kWh last month from P13.1734 per kWh in February. This means that households that use 200 kWh per month pay about P129 more on their electricity bill in March.
Rice prices also continued to rise in March, with the average cost of local milled rice rising 5.8% to P48.69 per kilo in the second half of the month from P46.02 last year.
The price of finely milled rice jumped by 8.02% year-on-year to P56.68 per kilo, while the price of special rice rose by 3.79% year-on-year to P64.07 per kilo.
On the other hand, the local currency also gained against a strong dollar during the Middle East war.
On Tuesday, the peso lost 5.8 centavos to close at a record low of P60.748 against the greenback from its previous record high of P60.69 on Monday, data from the Bankers Association of the Philippines showed.
Michael Wan, senior financial analyst at MUFG Global Markets Research, sees the local unit underperforming amid pressure from looming oil shortages and spillovers from other sectors in addition to price shocks.
“We think the next phase of Asian currencies may shift to concerns about growth and that significant downside risk to the markets if the Iran conflict continues,” he said in a note on Tuesday. “This will likely mean sensitive growth and current account deficits in emerging market currencies are likely to show greater volatility going forward, including the likes of the INR (Indian rupee), PHP (Philippine peso), IDR (Indonesian rupiah), and KRW (Korean won).”
In a letter dated March 30, Metropolitan Bank & Trust Co. (Metrobank) also said that inflation is likely to continue to rise in the coming months amid ongoing oil risks from the ongoing war in the Middle East.
It also expects the peso to remain weak in the near term as uncertainty surrounding the war continues to attract demand for the safe haven of the US dollar.
This may pressure the central bank to increase its policy rate before the end of the year to reduce inflation, said Metrobank.
“Metrobank continues to see the continuation of the oil crisis, as the Strait of Hormuz, the world’s most important oil transit point, remains closed,” the statement said. “We also expect the Bangko Sentral ng Pilipinas to raise the policy rate this year to combat inflation.”
Last week, the BSP kept its policy rate at 4.25% in an informal meeting as it noted that emerging inflationary pressures are supply-driven, with policy adjustments having little impact.
The next BSP policy review is on April 23.
However, BSP Governor Eli M. Remolona, Jr. noted that future policy decisions will depend on the price results of the second round, adding that a worst-case scenario of $200-a-barrel oil prices will force them to tighten.
Global oil prices have hovered around $100 a barrel in recent weeks. Brent crude futures rose nearly 2% to $114.98 a barrel on Tuesday, bringing total gains for the month to an all-time high of nearly 59%, Reuters reported.
The BSP said it will continue to assess the effects of the Middle East conflict on local currency inflation and economic activity.
