The upcoming El Niño season and its potential impact on food prices pose additional risks to inflation on top of the ongoing energy shock, according to Bank of the Philippine Islands (BPI) lead economist Emilio S. Neri Jr.

Neri said that while inflation eased to 6.8 percent in May, upside risks remain significant, with second-round effects from higher energy costs and weather-related disruptions expected to put pressure on food prices, a major component of the consumer price index (CPI).

“Current food prices may not yet fully reflect the impact of the Middle East conflict. Beyond higher oil prices, fertilizer costs have also risen sharply. The impact on food prices is likely to emerge with a lag, as these higher input costs will only be reflected in crops currently being planted and scheduled for harvest in the second half of the year,” he said in a recent commentary.

Data from the Philippine Statistics Authority (PSA) showed inflation for food and non-alcoholic beverages eased to 5.7 percent in May from 6.0 percent in April. Transport inflation also moderated, helping pull headline inflation down from its three-year high recorded the previous month.

Largest contributors to overall inflation

Despite the slowdown, food, housing and transport remained the largest contributors to overall inflation, accounting for nearly four-fifths of the headline rate.

To help mitigate price pressures, the Department of Agriculture (DA) said it has reinstated dedicated food lanes, waived toll fees for agricultural shipments, and reduced port charges to speed up the movement of goods. Fuel subsidies are also being extended to ease pressure on transport operators within the food supply chain.

Neri also identified the looming El Niño season as a significant risk to inflation. He noted that its initial phase could bring extreme rainfall and weather disturbances in the coming months before potentially transitioning into severe drought conditions later in the year.

Inflation compounded by severe El Niño

“Inflation risks are further compounded by forecasts of a severe El Niño developing between June and August, which could adversely affect agricultural output, particularly rice. With rice accounting for nearly 9 percent of the consumer basket, any significant disruption to supply could have a meaningful impact on headline inflation in the latter part of the year,” he said.

PSA assistant national statistician Rachel Lacsa likewise warned that the anticipated Super El Niño could drive commodity prices higher and add to inflationary pressures.