November 2022 inflation climbs to 8.0% due to increased economic activity, supply constraints

Increased demand from higher economic activity and supply constraints have put upward pressure on headline inflation for November 2022, which rose to 8.0 percent from the previous month’s 7.7 percent.

Year-to-date (YTD) average inflation increased to 5.6 percent and is expected to remain elevated next month, bringing the full-year inflation assumption to 5.8 percent.

“We expect inflation to moderate within target range in the second half of next year, averaging between 2.5 and 4.5 percent for full year 2023 as global oil and food prices ease,” said Finance Secretary Benjamin Diokno.

According to the Philippine Statistics Authority (PSA), this month’s inflation is the highest since the global financial crisis in November 2008, which was recorded at 9.1 percent.

Department of Finance (DOF) estimates show that electricity, gas, and other fuels remain the highest contributor to inflation at 0.9 percentage point (ppt). Main contributors to the higher food inflation are vegetables (0.7 ppt), meat and food and beverage services (0.6 ppt), fish and other seafood (0.5 ppt), and sugar (0.4 ppt). Passenger transport services and operation of personal transport equipment contributed 0.6 ppt and 0.5 ppt, respectively. Food and beverage services also contributed 0.6 ppt to inflation.

Meanwhile, inflation in the National Capital Region (NCR) decreased to 7.5 percent, from the 7.7 percent in October 2022.

For areas outside the NCR, Region XI (Davao Region) had the highest inflation rate for November 2022, which stood at 9.7 percent. In contrast, the Bangsamoro Autonomous Region in Muslim Mindanao (BARMM) had the lowest inflation rate at 6.0 percent.

During its 183rd meeting on December 5, 2022, the Development Budget Coordination Committee (DBCC) slightly adjusted its average inflation rate assumption for 2022 to 5.8 percent from the previous assumption of 4.5 to 5.5 percent given the persisting high prices of food and transport costs.

The DBCC also expects inflation to moderate in the medium-term, reaching 2.5 to 4.5 percent in 2023 before returning to the target range of 2.0 to 4.0 percent in 2024 until 2028.

Despite the sharp increase in inflation, the economic managers reassured the public that the government is committed to take actions that will mitigate the lingering effects of the pandemic and the impact of geopolitical tensions.

“We are hopeful that the public consultation on the extension of Executive Order (EO) No. 171, conducted by the Tariff Commission, will be favorable and help ease food and energy inflation next year. EO 171 reduced the Most Favored Nation tariff rates on pork, rice, corn, and coal and is set to expire by the end of the year,” said Secretary Diokno.

A National Price Coordinating Council (NPCC) meeting was held on December 1, 2022 to discuss the reestablishment of the National Information Network (NIN) pursuant to the Agriculture and Fisheries Modernization Act of 1997. This will help manage the current domestic market conditions.

The inclusion of more detailed regional information on the supply and demand situation and production capacity could facilitate the efficient distribution of locally produced commodities in the country and the development of targeted solutions and capacity building.

The government has intensified its measures to improve local production, increase productivity, and help the agricultural sector rehabilitate and recover from the damages caused by recent typhoons.

Other direct measures to address supply shocks are the continued provision of targeted transport, fertilizer, and fuel subsidies to affected sectors. The government is also ensuring that there is sufficient supply of sugar for domestic consumption. Farmers and fisherfolk will be supported through the KADIWA ni Ani at Kita, which connects producers to consumers in Metro Manila and other areas.

“Reducing inflation continues to be a major priority of the National Government. I have instructed our agencies to remain diligent in conducting regular price monitoring activities to manage unreasonable price increases,” said Secretary Diokno.

The Bangko Sentral ng Pilipinas (BSP) said the latest inflation number is the highest level observed since November 2008, but within the BSP’s forecast range of 7.4-8.2 percent.

The year-to-date average of 5.6 percent is above the Government’s announced inflation target range of 2.0-4.0 percent for 2022.

Core inflation, which excludes selected volatile food and energy items to measure underlying price pressures, also increased to 6.5 percent in November from 5.9 percent in the previous month.

Meanwhile, month-on-month seasonally-adjusted headline inflation slowed down to 0.7 percent in November from 1.0 percent in October.

The higher inflation in November was attributed largely to the increase in prices of food items amid strong typhoons over the recent months. In particular, inflation for rice, fruits, sugar, and vegetables such as eggplants and red onions registered faster price increases for the month. Limited fish supply due to severe tropical storm Paeng as well as the start of the annual three-month closed fishing season also pushed fish prices upward.

Prices of restaurants and accommodation services mainly contributed to the rise in non-food inflation while transport and housing, water, electricity, gas, and other fuels inflation remained elevated during the month.

The November inflation outturn is in line with the BSP’s assessment of above-target inflation in the near term before gradually decelerating in the succeeding months as the cost-push shocks to inflation due to weather disturbances and transport fare adjustments dissipate.

Nonetheless, the BSP continues to be vigilant against risks to the outlook and remains committed to  taking all necessary action to bring inflation back to a target-consistent path over the medium term.

The BSP also reiterates its full support for the National Government’s efforts to ease domestic supply constraints. The monetary authorities will consider the information at the December 15 policy meeting of the Monetary Board.