BSP sees July inflation at 4%-4.8%

Headline inflation may have accelerated in July, possibly ending seven straight months of within-target inflation, the Bangko Sentral ng Pilipinas (BSP) said on Wednesday.

The central bank’s month-ahead forecast showed that inflation likely settled within the 4%-to-4.8% range in July.

This would be faster than the 3.7% print in June. Inflation stood at 4.7% in July 2023.

Inflation has been within the 2-4% target from December 2023 to June 2024.

The central bank previously said that inflation could temporarily overshoot the target band in July before returning to target by August.

The Philippine Statistics Authority is scheduled to release July inflation data on Aug. 6.

“Higher electricity rates along with the increased prices for agricultural commodities like vegetables, meat, and fruits along with higher domestic oil prices are the primary sources of upward price pressures for the month,” the BSP said.

In July, households served by Manila Electric Co. saw an upward adjustment of PHP 2.1496 per kilowatt-hour (kWh) in the electricity rate for the month. This brought the overall rate for a typical household to PHP 11.6012 from the previous month’s PHP 9.4516 per kWh.   

Pump price adjustments stood at a net increase of PHP 1.30 a liter for gasoline for the month of July. Meanwhile, diesel and kerosene had a net decrease of PHP 0.90 and PHP 1.70, respectively, per liter.

“These factors are expected to be offset in part by lower rice and fruit prices along with the peso appreciation,” the BSP said.

The average price of a kilogram of well-milled rice ranged from PHP 45-PHP 55 as of end July from PHP 48-PHP 55 at end-June. Regular milled rice was priced at PHP 45-PHP 50 from PHP 45-PHP 52.

Rice inflation eased to 22.5% in June from 23% a month ago, marking the third straight month of slower rice inflation.

The peso appreciated to PHP 58.365 per dollar on July 31, strengthening by 24.5 centavos from its PHP 58.61 finish on June 28.

WITHIN TARGET?

Meanwhile, analysts expect inflation to accelerate month on month but still see it settling within the 2-4% target range.

“Headline inflation may fall within target again in July, reaching 3.8%, with price pressures fading at a more favorable pace to start the second half of the year,” Metropolitan Bank & Trust Co. (Metrobank) Chief Economist Nicholas Antonio T. Mapa said in the bank’s latest Wealth Insights report.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort expects inflation to quicken to 4%, but still within the central bank’s target band.

Mr. Ricafort noted the inflationary impact from Typhoon Carina and the southwest monsoon.

“Realistically, there may be some temporary pickup in prices in hard-hit areas until logistics normalize, also in view on some damage on agriculture… that could lead to some transitory pickup in food prices,” he said.

The latest data from the Agriculture department showed that agricultural damage due to the typhoon and southwest monsoon hit PHP 1.21 billion as of July 31.

Rice was the most affected crop, accounting for more than half (52.47%) of the damage or PHP 635.17 million.

For the coming months, inflation is seen to ease further, with Mr. Mapa expecting the headline print possibly slowing to as low as around 2% by September.

“This significant decrease is primarily due to the government’s tariff reduction lowering rice prices, which heavily impacts the consumer price index (CPI) basket,” he said.

In June, President Ferdinand R. Marcos, Jr. signed an executive order which slashed tariffs on rice imports to 15% until 2028 to tame rice prices.

“The combination of lower rice prices and favorable base effects could push inflation towards the lower end of the central bank’s target range. This trend suggests a potential shift towards a more stable price environment, which may influence future economic policies,” Mr. Mapa added.

The central bank is also expected to start cutting rates soon amid easing inflation, analysts said.

“The BSP is anticipated to begin a cycle of interest rate cuts. This monetary policy shift could stimulate economic growth by encouraging new investments across various sectors,” Mr. Mapa said.

Mr. Ricafort said that the Monetary Board will likely cut by 25 basis points (bps) at its Aug. 15 meeting, especially if inflation remains within target.

The Monetary Board has raised borrowing costs by a cumulative 450 bps from May 2022 to October 2023, bringing the key rate to an over 17-year high of 6.5%.

BSP Governor Eli M. Remolona, Jr. has said they are on track to cut by August, for a total of up to 50 bps for the entire 2024. – Luisa Maria Jacinta C. Jocson, Reporter