Inflation has probably declined, still above target
Through Luz Wendy T. Noble, Journalist
INFLATION IN JUNE probable Surpassed the Philippine central bank’s target for the sixth consecutive month, albeit at slower pace due to improving food supplies and falling transportation prices, analysts said.
Consumer prices rose 4.3%, according to a median estimate of 14 analysts polled by Business world last week, corresponding to the midpoint of the estimate of 3.9% to 4.7% by the Bangko Sentral ng Pilipinas (BSP).
That’s faster than inflation of 2.5% a year earlier and the central bank’s 2-4% target for the year, but slower than 4.5% in May, for the most part due to falling food prices, analysts said.
The Philippine Statistics Authority will release the June Consumer Price Index data on July 6.
“The temporary reduction in tariff rates for pork and rice would have already resulted in some gradual reduction in local meat prices,” said Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp. in an email.
Food prices have increased in recent months due to the limited supply of pork products amid an outbreak of African swine fever. In May, the government raised the minimum access volume and reduced tariff rates for pork imports for a year.
The government also reduced the tariffff rice prices for the next 12 months in order to keep prices at a lowffcheap and increase supply.
Better weather conditions last month have likely kept fruit and vegetable prices stable, said Nicholas Antonio T. Mapa, senior economist at ING Bank NV Manila, in an email response to questions.
Transport inflThe ation may have slowed down due to the base effects of higher tricycle fares last year, he added.
Rising oil prices represent a major risk to inflation, said Robert Dan J. Roces, chief economist at Security Bank Corp. in an email.
Electricity rates have also increased due to tight supply and increased demand from businesses that have reopened due to a coronavirus pandemic, he added.
Gasoline, diesel and kerosene prices rose P10.75, P9.25 and P7.70 per liter, respectively, as of June 22, according to Energy Department data.
Manila Electric Co. said last month that electricity tariffs rose from P 0.0798 per kilowatt hour (kWh) to P 8.6718, from P 8.5920 in May.
The sluggishness of domestic demand could have led to a slowdown inflLast month, despite rising oil and electricity prices, Ruben Carlo O. Asuncion, chief economist at UnionBank of the Philippines, said in an email.
The central bank raised itsflInflation forecast for the year at 4% versus 3.9%, saying it took into account the impact of rising global oil prices and more favorable global growth prospects. Inflation in the Fifive months to May was 4.4%.
He kept its key rate unchanged at a record 2%, while pledging to continue supporting an economy threatened by the coronavirus. The deposit and demand loan facilities were also maintained at 1.5% and 2.5% respectively.
RelaxflEven if it is still beyond target, the central bank could maintain an accommodative policy it had promised to support the economic recovery, said Alvin Joseph A. Arogo, head of research at the Philippine National Bank.
“A slower inflation in June, even if it is still above 4%, could giveFiup to the BSP which culminates inflation is behind us, ”he said in an email response to the questions. “This would allow the central bank to remain accommodating in a context of declining lending and the slow recovery in gross domestic product,” he added.
BSP Governor Benjamin E. Diokno said the central bank would maintain an accommodative policy “as long as needed” and would only consider changes when the recovery becomes more sustainable, possibly in the second half of next year. .
The economy contracted 4.2% in the first quarter after a record 9.6% contraction in 2020. The government expects the economy to grow 6% to 7% this year.
Various multilateral lenders and think tanks have lowered their growth forecasts for the country amid lockdowns amid a new wave of coronavirus infections.
Bank loans, which boost trade and commerce, have been declining since December despite record interest rates. Loans fell 4.5% in May – the sixth consecutive month of decline – after falling 5% in April.
The central bank spoke of the need to maintain an accommodative policy given the weakness in credit activity. But it can lead to a surprise increase if it is high inflation persists, said Emilio S. Neri, Jr., chief economist at the Bank of the Philippine Islands.
The dollar could appreciate too quickly against the peso over the next two months if inflation remains high and economic growth in the second quarter exceeds market expectations, he said in a Viber message. “We believe that the next Monetary Council decision may lean towards a moderate and preventive increase.”
The peso closed at the P49-a-dollar level on Thursday and continued to weaken at P49.20 on Friday, its weakest close in nearly a year, according to data from the Philippine Bankers Association.
Analysts attributed the weaker peso to strong demand for dollars as the economy reopens and due to cautious sentiment amid coronavirus concerns.
The Monetary Policy Council will meet on August 12 to decide on policy rates and will hold three more meetings this year.