Drops for 4th month in row, dovetails with better job figures
Inflation eased further to a near one-year low in May 2023 at 6.1 percent, down from 6.6 percent in April due to slower increases in the prices of transport, food and non-alcoholic beverages, the Philippine Statistics Authority (PSA) said Tuesday.
Data showed that the May inflation was the slowest since the 6.1 percent posted in June 2022. The May inflation remained higher than the rate a year ago of 5.4 percent.
The May figure brings the average inflation in the first five months to 7.5 percent, well over the government’s target range of 2 to 4 percent.
National statistician and civil registrar Dennis Mapa said in an online briefing that inflation declined for the fourth consecutive month in May 2023.
President Ferdinand Marcos Jr. said the decreasing inflation rate is a welcome development and a sign of continued progress towards affordable prices of goods.
“Today we received encouraging news that our inflation rate has now gone down – our headline inflation rate has gone down from 6.6 percent to 6.1 percent, and our employment figures are also improving,” Mr. Marcos said.
“It looks like we’re doing the right thing. Let’s continue what we are doing so that we can see that we return to a good situation again,” the President said.
Budget Secretary Amenah Pangandaman said the administration would continue carrying out its economic strategies.
“This goes to show that the economic strategies of the administration…[are] on the right track. Our whole-of-government approach is working,” she said.
Among the 13 commodity groups, the decline in headline inflation was primarily brought about by the annual decline in the index of transport at -0.5 percent from the 2.6 percent annual increase in the previous month. The heavily-weighted food and non-alcoholic beverages also pulled down the overall inflation during the month with a lower inflation rate of 7.4 percent from 7.9 percent in April 2023.
Restaurants and accommodation services registered slower inflation at 8.3 percent from 8.6 percent in the previous month.
In addition, the annual rate of alcoholic beverages and tobacco index slowed down to 12.3 percent during the month.
Meanwhile, higher inflation rates were observed in the indices of furnishings, household equipment and routine household maintenance at 6.2 percent in May 2023 from 6.1 percent in April 2023; and recreation, sport and culture at 4.9 percent during the month from 4.7 percent in the previous month.
Like headline inflation, core inflation—which is the change in prices of goods and services, except for those from the food and energy sectors—-also decelerated to 7.7 percent in May 2023 from 7.9 percent a month ago.
“The decreases [in core inflation] are small but we see a continuous drop in the past months,” Mapa said.
Michael Ricafort, the chief economist of Rizal Commercial Banking Corp., said the “expected easing trend in year-on-year inflation for the coming months to about 5 percent levels in June 2023; 4 percent levels from July-September 2023 and 3 percent levels from October-December 2023, and 2 percent levels or even lower in the first quarter of 2024 [largely due to higher base/denominator effects] could fundamentally support faster GDP/economic growth going forward amid reduced drag from inflationary pressures.”
But Ricafort said this could be offset by the risk of an El Nino drought in terms of reduced agricultural production/output and some pick up in food and agricultural prices in the latter part of 2023 to early 2024.
Finance Secretary Benjamin Diokno said the May inflation and its declining trend “give confidence that inflation would be within the target range of 2 to 4 percent by September this year.”
The May 2023 inflation of 6.1 percent fell within the Bangko Sentral ng Pilipinas’ forecast range of 5.8 to 6.6 percent for the month, consistent with the overall assessment that inflation will remain elevated over the near term before gradually decelerating back to the target range in the fourth quarter of 2023 in the absence of further supply-shocks.
The BSP said the impact of a weaker-than-expected global economic recovery continues to be the primary downside risk to the outlook.
“The Monetary Board will review its assessment of the inflation and macroeconomic outlook in the monetary policy meeting on June 22, 2023.
The BSP stands ready to adjust the monetary policy stance as necessary to prevent the further broadening of price pressures as well as the emergence of additional second-order effects,” it said.
The BSP also reaffirmed its continuous support for the timely and effective implementation of non-monetary government measures to mitigate the impact of persistent supply-side pressures on inflation.
The BSP in its latest policy meeting kept the 6.25 percent key interest rate, taking into account the slowdown in inflation in the past months.
National Economic and Development Authority Secretary Arsenio Balisacan reassured the public that a coordinated and proactive monitoring system is in place to keep food and energy prices within the target range.
“We are confident that we can achieve the government’s inflation target this year as we work closely with concerned government agencies in monitoring the primary drivers of inflation,” Balisacan said after the release of the May inflation data.
On May 26, 2023, President Ferdinand Marcos, Jr. signed Executive Order 28 that created the Inter-Agency Committee on Inflation and Market Outlook. This committee aims to enhance government coordination in managing inflation and mitigating the impact of rising commodity prices.
Balisacan said the committee is keeping tabs not only of current trends and data on local and international prices but also the level of domestic production, import arrivals, climate outlook and other relevant supply and demand information for key commodities.
In the short term, he said there is a need to fill local supply gaps with timely imports to ensure sufficient rice buffers during the El Niño.
To mitigate the impact of El Niño on food security, Balisacan recommends ensuring an adequate supply of agricultural inputs, positioning pumps, promoting early planting in areas likely to experience a water deficit in the coming months, and maximizing production in non-threatened areas.
Inflation hit 5.8 percent last year and surpassed the target range of 2 to 4 percent. It peaked at 8.7 percent in January 2023 but started to ease to 8.6 percent in February, 7.6 percent in March, and 6.6 percent in April 2023.
In a Palace press briefing on Tuesday, Trade Secretary Alfredo Pascual said the latest inflation data was discussed during a sectoral meeting with the President.
He said the government would work on addressing bottlenecks in the supply chain to further ease food inflation.
