March 2023 inflation – Good news and bad news

April 5th, 2023

By Rep. Joey Sarte Salceda

Inflation levels going down in March gives us ample room to absorb potential shocks in the global monetary and financial environment. It also anchors inflation expectations, allowing businesses and consumers to make firmer decisions about their spending and investing activities this year.

The good news is:

1. Food is significantly cheaper this month compared to last month, with a month-on-month inflation rate of negative 1.2 percent. Vegetables, in particular, are 14.1 percent cheaper this month compared to last month. Corn is also cheaper, albeit at a slower pace than food in general, at negative 0.7 percent MOM. Onion farmgate prices, in particular, have now hit the P50 range in many areas, as I predicted some weeks ago.
2. The livestock sector shows some resiliency, having among the lowest YOY inflation rates among all food items, at 4.6 percent. MOM, inflation is negative, at -0.2 percent.
3. Rice liberalization continues to show its benefits on the consumer side, with YOY inflation being at just 2.6 percent, well within the BSP target. There are signs of impending price hikes in rice, however, so we have to watch out to make sure the price increases, if needed, are not above necessary. El Nino is the main upside risk, moving forward. Irrigation maintenance and coverage will be critical. To this effect, I reiterate my request to President Marcos that directives to the water management agencies be formalized in an executive order.
4. Operation of cars and motorcycles is also cheaper by 3 percent this month compared with last month.

Things to watch out for and act upon are the following:

1. Corn remains expensive, at 11.7 percent YOY inflation. This will continue to have impacts on the price of meat, fish, processed food, and other key commodities. There are signs of a downward momentum in prices, with MOM inflation being at negative 0.7 percent – but El Nino looms large as an upside risk to price.
2. Flour and bread remains expensive at 11.7 YOY inflation. Price issues in this area will persist as the Russia-Ukraine conflict continues.
3. Fish and seafood prices remain high at 9.9 percent. There is reason to believe that inflation in this area will be higher by April, due to the Mindoro oil spill as well as the generally warmer climate.
4. The sugar problem is structure. 35 percent YOY inflation when global sugar inflation levels are closer to 8.5 percent is an untenable situation for food and beverage manufacturing. If we continue to avoid difficult reforms in this area, we will continue to pay the price.

Overall outlook

Month-on-month inflation, at negative 0.2 percent, is below what I believe is necessary for the Bangko Sentral to pause its rate hike regime. Do not expect Governor Medalla to signal a pause anytime soon, especially since there is also no indication of a price decline in assets, especially real estate.

That said, I sustain my observation that general price levels will continue to decline moving forward. We will hit BSP inflation targets by October, if not earlier. But the annual average price levels are likely to be above 5 percent for the full year 2023.