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Philippine economic growth likely picked up in the second quarter as higher government spending may have offset the impact of El Niño on agriculture, analysts said.

A BusinessWorld poll of 19 economists and analysts conducted late last week yielded a median gross domestic product (GDP) year-on-year growth estimate of 6% for the April-to-June period.

If realized, this would be faster than the preliminary 5.7% growth in the first quarter and the 4.3% clip recorded in the second quarter of 2023.

This would also bring the first-half growth to an average of 5.9%, below the 6-7% growth target for the year.

The Philippine Statistics Authority will release the second-quarter GDP data on Thursday (Aug. 8).

“The main driver of growth was likely government spending. In contrast to last year’s underspending, the utilization rate of the 2024 budget has significantly improved,” HSBC ASEAN (Association of Southeast Asian Nations) economist Aris D. Dacanay said in an e-mail.

In an e-mail, Sarah Tan, an economist from Moody’s Analytics, said government spending and “robust” goods exports are expected to be the bright spots in the second quarter.

Data from the Bureau of the Treasury (BTr) showed that government spending rose by 14.6% year on year to P2.76 trillion in the second quarter.

Mr. Dacanay said the strong labor market may have also helped sustain household spending despite elevated inflation and high interest rates.

The country’s employment rate reached 95.9% in May, slightly higher than the 95.7% recorded a year ago. The unemployment rate also slipped to 4.1% in June from 4.3% in May 2023.

Victor A. Abola, an economist at the University of Asia and the Pacific, said high employment, “very elevated” government spending, and better-than-expected remittances have also contributed to faster growth.

Overseas remittances in the January-to-May period grew 3% to $13.37 billion from $12.98 billion a year ago.

EL NIñO

Meanwhile, El Niño’s impact on agriculture and slower household consumption may have constrained growth in the second quarter, analysts said.

Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said El Niño was likely a drag on the economy, both demand and supply side, as early as the first quarter.

Ruben Carlo O. Asuncion, chief economist of Union Bank of the Philippines, Inc., said El Niño had a “scalding impact” on farm employment and rural incomes.

“Aside from the severe El Niño-related drought effects that cut down farm production, agricultural jobs and incomes, and contributed to higher food costs, the BSP (Bangko Sentral ng Pilipinas) sentiment that reeked of more pessimism among households and business respondents, likely translated to lackluster spending during the quarter,” he said in an e-mail.

Mr. Asuncion said “price-conscious” households may have postponed purchasing big-ticket consumer items until incomes fully recover.

Headline inflation eased to 3.7% year on year in June. For the first six months of 2024, headline inflation averaged 3.5%, slightly higher than the central bank’s 3.3% full-year forecast.

The BSP kept its key rate steady at 6.5% in June, the highest in over 17 years.

“Private consumption and investment will likely slow from the prior quarter as the high borrowing costs continue to weigh on their budgets and confidence,” Ms. Tan said.

For the rest of the year, analysts expect growth to continue as inflation eases.

“We are hopeful that slower inflation in [the second semester] will help boost consumer confidence further. Slower rice inflation should help free up some of the Filipino consumers’ budget to help boost demand for nonfood consumer items. We also expect midterm elections spending to pick up even faster in the second semester to boost public sector spending,” Mr. Neri said.

BSP Governor Eli M. Remolona, Jr. earlier said that he expects inflation to ease in the second semester with the implementation of lower tariffs on rice.

Last month, President Ferdinand R. Marcos, Jr. signed Executive Order No. 62 which slashed tariffs on rice imports to 15%, helping tame rice prices.

“We do expect year-on-year growth to ease in [the second semester] as favorable base effects ease. Nonetheless, we expect sequential growth to still be punchy, most especially when rice prices begin to drop, freeing up a big portion of household budgets and boosting private consumption,” Mr. Dacanay said.

However, Ms. Tan sees full-year economic growth to be below the government’s target of 6-7%.

“Across 2024, the Philippine economy is expected to grow 5.9%, outperforming many of its regional peers. An acceleration in exports from 2023 will bring this to fruition while private consumption will be the weakest link resulting in the economy missing the government’s growth target of 6-7% for the year. Still, a relatively tight labor market and a healthy inflow of remittances will cushion some of that pain,” she said. – Karis Kasarinlan Paolo D. Mendoza

The Philippines’ overall agricultural output may have declined in the second quarter after crop production likely bore the brunt of droughts caused by the El Niño weather phenomenon, analysts said.

University of Asia and the Pacific (UA&P) Center for Food and Agribusiness Executive Director Marie Annette Galvez-Dacul said in a Viber message that farm production likely fell by 1.5% to 2.5% in the April-to-June period due to El Niño.

If realized, this would be worse than the 1.3% decline in the value of production in agriculture and fisheries seen in the second quarter of 2023. It would also be a reversal of the 0.05% growth in the first quarter of 2024.

El Niño, which began in June 2023, brought below-normal rainfall conditions, dry spells and droughts that affected crop production.

In early June, the state weather bureau declared the end of the El Niño although dry spells persisted in some parts of the country.

“I am expecting a drop due to the lingering effects of El Niño during the second quarter. Some of the crops may have survived, but output and productivity would have been affected due to water stress,” Federation of Free Farmers National Manager Raul Q. Montemayor said in a Viber message.

The Philippine Statistics Authority is set to release second-quarter data on farm output on Aug. 7 (Wednesday). The agriculture sector contributes about a tenth of the country’s gross domestic product (GDP) and provides around a quarter of all jobs.

UA&P’s Ms. Dacul said she expected a decline in crops and fisheries output in the second quarter due to the unseasonably warm weather brought by El Niño.

The crop subsector contributes more than half to the country’s overall agricultural production. As of the first quarter, rice contributed about 20% to the total, while corn accounted for 8%.

On the other hand, Philippine Chamber of Agriculture and Food, Inc. President Danilo V. Fausto said farm growth for the second quarter was likely flat.

“(El Niño) didn’t hit too hard but there was still an effect. So, whatever we are expecting to have an increase in yield, in output, it might be dampened because of the El Niño,” Mr. Fausto said in a phone call.

Farm damage due to El Niño totaled PHP 15.3 billion, with rice and corn being the most affected crops, according to the Department of Agriculture’s (DA) final bulletin issued on Aug. 2.

The DA reported that total crop damage was at 784,344 metric tons covering 270,855 hectares of farmland, of which 68% or 184,182 hectares were deemed recoverable. It had affected 333,195 farmers and fisherfolks.

Ms. Dacul said that the poultry sector likely posted an increase in output in the second quarter, while livestock production may have been flat.

LA NIÑA

This year, the DA is targeting 1-2% agricultural growth, accounting for the effects of the El Niño and La Niña weather events.

Agriculture Secretary Francisco P. Tiu Laurel, Jr. said last month that the DA’s target would be achievable if no major typhoons hit the country during the second half of the year.

“For the second half, we are challenged because of La Niña. So, the agriculture sector really will be (impacted by it),” Mr. Fausto said.

The Philippine Atmospheric, Geophysical, and Astronomical Services Administration said that there is a 70% likelihood of La Niña occurring during the months of August, September, and October. It would increase the likelihood of tropical cyclone activity in the coming months.

Roehlano M. Briones, a senior research fellow at the Philippine Institute for Development Studies, said that agricultural growth would likely be at 1% for the full year if the livestock, poultry, and aquaculture subsectors recovered.

“The start of rains in July would have helped farmers recover, but the recent typhoon shows how unpredictable the weather can be and how vulnerable agriculture is to natural calamities,” Mr. Montemayor said.

However, former Agriculture Undersecretary Fermin D. Adriano said in a Viber message that it is unlikely that the agricultural output would hit the DA’s target for the year.

“Now with incoming La Niña, further crop damage will be experienced. Assuming the optimistic projection is true, where will growth come from?” he asked. – Adrian H. Halili, Reporter

The National Government’s (NG) gross borrowings declined by 11% year on year in June as external debt dropped, the Bureau of the Treasury (BTr) reported.

The latest data from the BTr showed that gross borrowings in June fell to PHP 148.18 billion from PHP 166.49 billion in the same month a year ago.

Gross external debt in June slumped by 30.43% to PHP 15.7 billion from PHP 22.57 billion a year ago, BTr said.

This consisted of PHP 5.06 billion in program loans and PHP 10.64 billion in new project loans.

On the other hand, domestic debt, which accounted for 89.4% of total borrowings, declined by 7.95% to PHP 132.48 billion in June from PHP 143.92 billion a year prior.

Gross domestic borrowings included PHP 110.23 billion in fixed-rate Treasury bonds and PHP 22.25 billion in Treasury bills.

In the first half of the year, gross borrowings rose by 12.89% to PHP 1.57 trillion from PHP 1.39 trillion in the same period in 2023.

Gross domestic borrowings stood at PHP 1.3 trillion in the January-to-June period, up by 27.16% from PHP 1.02 trillion a year ago.

Domestic debt in the first half of the year consisted of PHP 584.86 billion in retail Treasury bonds, PHP 609.21 billion in fixed-rate Treasury bonds, and PHP 109.07 billion in Treasury bills.

On the other hand, external gross borrowings dropped by 27.02% to PHP 267.41 billion in the period ending June from PHP 366.44 billion a year ago.

This was made up of PHP 100.5 billion in program loans, PHP 51.67 billion in new project loans, and PHP 115.25 billion in global bonds.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the government may not have needed to boost borrowings in June because of higher dividends from government-owned and -controlled corporations (GOCCs).

“More dividends from GOCCs remitted to the National Government (NG) would have helped reduce the need for the NG to borrow to be able to finance the budget deficit,” he said in a Facebook Messenger chat.

GOCCs have remitted PHP 92.15 billion in dividends to the NG as of end-June, the BTr said.

In April, the Department of Finance raised the mandatory dividend remittances of GOCCs to 75% of their annual net earnings in 2023 from 50% previously.

The government may also be waiting for the Philippine and US central banks to ease monetary policy before it could borrow more, Mr. Ricafort said.

“Market expectations of lower Fed and local interest rates could have also provided the NG some leeway to wait for interest rates/borrowing costs to further go down to be able to save on financing costs/debt servicing costs,” he said.

The US Federal Reserve kept its key policy rate at the 5.25-5.5% range last week, but could start easing by September amid its weakening job market.

On the other hand, the Bangko Sentral ng Pilipinas earlier signaled a potential 25-basis-point cut at its Aug. 15 meeting.

The NG’s borrowing plan for this year is set at P2.57 trillion, of which 75% will come from domestic sources and 25% from foreign sources. — B.M.D.Cruz

Headline inflation likely accelerated in July but remained within the central bank’s 2-4% target range, analysts said.

A BusinessWorld poll of 15 analysts this week yielded a median estimate of 4% for the consumer price index (CPI) in July. This matches the lower end of the 4%-4.8% forecast of the Bangko Sentral ng Pilipinas (BSP). 

July inflation could be faster than 3.7% in June but slower than 4.7% a year earlier.

July could also mark the eighth straight month that inflation settled within the BSP’s 2-4% target.

The Philippine Statistics Authority (PSA) is set to release inflation data on Tuesday (Aug. 6).

BSP Governor Eli M. Remolona, Jr. told reporters late on Wednesday that inflation should have peaked in July, based on central bank projections.

Finance Secretary Ralph G. Recto separately said July inflation was expected to have accelerated though still within target.

“Coming from a low base, inflation will be higher, but still within target (2-4%),” he told reporters late Tuesday.

However, Mr. Remolona noted that the full impact of Super Typhoon Carina and the southwest monsoon would not yet be reflected in the July print.

“It won’t affect the July number. Usually, the effects come with a lag so it may not even affect August in terms of the aggregate CPI basket.”

Mr. Recto likewise said July inflation would be spared from the impact of typhoon losses. “Most likely, the impact will be seen in August. It won’t be in July.”

The latest data from the Agriculture department showed that agricultural damage due to the typhoon and southwest monsoon had hit P1.21 billion as of July 31. Rice was the most affected crop, accounting for more than half of the damage.

RISING FOOD PRICES

On the other hand, HSBC economist for ASEAN (Association of Southeast Asian Nations) Aris D. Dacanay said there could be a “slight uptick” in food prices due to the typhoon’s impact on logistical costs.

Sarah Tan, an economist from Moody’s Analytics, said the immediate impact of the storm might not register yet in July but could still potentially stoke inflation.

“However, given that the typhoon destroyed crop harvests in agricultural provinces like Pampanga, where the agricultural damage reportedly totaled more than P300 million, the impact on food supply could add price pressures in the coming months,” she said in an e-mail.

Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, Inc., said inflation likely accelerated to 4.6% due to higher prices of some food items, particularly vegetables, fruits, and condiments.

Price pressures will also come from higher electricity rates, analysts said.

“Headline inflation may have also jumped month on month due to the steep increase in Metro Manila’s electricity rates after being deliberately kept low in June,” Mr. Dacanay said.

In July, Manila Electric Co. raised rates by PHP 2.1496 per kilowatt-hour (kWh) to bring the overall rate for a typical household to PHP 11.6012 per kWh.

“For July, higher electricity rates, elevated agricultural commodity prices and increased domestic oil costs drove inflation, and this was partially offset by lower rice and fruit prices, as well as the peso’s appreciation,” Security Bank Corp. Chief Economist Robert Dan J. Roces said in an e-mail.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the stronger peso and the rollback in fuel prices could have offset inflationary pressures during the month.

Pump price adjustments stood at a net increase of PHP 1.30 a liter for gasoline for the month of July. Diesel and kerosene had a net decrease of P0.90 and P1.70, respectively, per liter.

The potential breach of July inflation would be temporary, Mr. Roces said.

“Despite the recent typhoon’s possible, albeit transitory, impact on food prices, inflation is expected to return to target in August due to favorable base effects,” he said.

“Inflation is still expected to immediately return to within the 2-4% target band once base effects fade and then ease to the range of 2-3% once the lower tariff rates on rice eventually begin to bring rice prices down,” Mr. Dacanay added.

President Ferdinand R. Marcos, Jr. in June signed an executive order that slashed tariffs on rice imports to 15% from 35% until 2028. It is widely expected to bring down the retail price of rice.

Mr. Remolona said the tariff cut would “significantly moderate inflation” in the coming months. “That’s a good thing that will help us ease monetary policy.”

RATE CUT

The BSP chief again signaled cutting rates as early as this month. “I think Aug. 15 is still a possibility. Of course, it will depend on the numbers,” Mr. Remolona said.

He said they could cut possibly by 25 basis points (bps) at their Aug. 15 meeting, and by another 25 bps later in the year. The Monetary Board’s (MB) last two policy meetings for the year are scheduled for Oct. 17 and Dec. 19.

“Less hawkish is the term that we’ve been using. So, it’s still hawkish, which means we will still remain tight, but maybe less tight than before,” Mr. Remolona said.

“It’s a tricky thing because we’re so close to the point where we might be getting to below capacity. We want to reduce demand so that income falls just to the level of capacity of the economy,” he added.

On the other hand, analysts noted that the central bank could keep rates steady amid continued risks.

“Softer-than-expected inflation for July could prompt BSP to pull the trigger when the Monetary Board meets in August, but risks to food inflation and a weak peso could make them lean towards a rate hold,” Ms. Tan said.

“We maintain our expectation that the BSP is unlikely to leapfrog the Fed, keeping the policy rate at 6.5% in August,” she added.

Philippine National Bank economist Alvin Joseph A. Arogo said inflation breaching the target could derail the central bank’s planned rate cuts.

“Although supply side-driven, a breach of the 2-4% target inflation band of the BSP could complicate the timing of the forthcoming easing cycle,” he said in an e-mail.

Mr. Remolona said the BSP would also be taking into consideration the upcoming second-quarter gross domestic product (GDP) data, among other key data points.

The PSA is set to release second-quarter GDP data on Aug. 8.

“A weaker-than-expected second-quarter GDP print will more likely mean that the MB will start easing rather than remaining unchanged as the MB looks to longer-term economic growth prospects amid high borrowing costs,” Mr. Asuncion said.

Metropolitan Bank & Trust Co. Chief Economist Nicholas Antonio T. Mapa said the BSP’s anticipated easing cycle would “stimulate economic growth by encouraging new investments across various sectors.”

“As a result of all this, a potential resurgence in investment momentum is expected to accelerate GDP growth in the medium term, likely pushing it beyond the 6% pace of expansion and possibly even higher,” he said in a Wealth Insights report. “This increased investment activity is anticipated to have both immediate and long-term positive effects on the economy.” – Luisa Maria Jacinta C. Jocson, Reporter

Manufacturing growth slowed slightly in July amid weaker expansion in production and orders, S&P Global said on Thursday.

The S&P Global Philippines Manufacturing Purchasing Managers’ Index (PMI) stood at 51.2 in July, easing from 51.3 in June.

“The latest index reading signaled only a modest improvement in the health of the Filipino manufacturing sector, and one that was the weakest since March (when PMI stood at 50.9 reading),” it said.

July also marked the 11^th straight month of improvement in operating conditions. A PMI reading above 50 signals improvement in operating conditions, while a reading below 50 means the opposite.

Among Association of Southeast Asian Nations (ASEAN) member countries with available data, the Philippines had the third-highest reading in July after Vietnam (54.7) and Thailand (52.8).  Malaysia (49.7), Indonesia (49.3), and Myanmar (48.4) all recorded contractions.

Philippine PMI was also lower than the ASEAN average of 51.6 in July.

“The second half of the year started modestly, with the Filipino manufacturing sector signaling further upticks in output and new orders,” Maryam Baluch, an economist at S&P Global Market Intelligence, said in a report.

“Though in both cases, the rates of increase were weaker than their respective long-run averages, thereby indicating relatively subdued growth across the sector.”

S&P Global said the latest data showed production activity grew at the slowest pace in the last four months due to longer supplier delivery times.

“The incidence of delay was the most pronounced since February as port congestion hampered the timely delivery of inputs,” it said.

On the other hand, demand improved in the Philippine manufacturing sector.

“New orders rose at a rate faster than June’s five-month low. However, firms recorded modest and cooling demand from overseas markets,” S&P Global said.

Despite this, a sustained increase in production requirements allowed manufacturers to boost purchasing activity in July.

“Though the rate of growth softened since the preceding survey period, it was solid overall. Firms remained keen to expand their holdings of finished goods and purchased items. Both pre-and post-production inventories were accumulated at rates stronger than their respective long-run averages,” S&P Global said.

Even though the backlog fell for the 13^th month in a row, manufacturing firms raised staffing levels in July after seeing a “strong uptick” in new orders. S&P said this was the first increase in employment since April, although it was still “modest overall.”

It said the July data showed costs slightly increased in July even though the rate of input price inflation went up to a five-month high. On the other hand, the pace of the rise in charges slipped to a three-month low.

The effects of Super Typhoon Carina had likely caused disruptions in manufacturing and other business activities in Metro Manila and nearby provinces, said Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort.

Last week, Metro Manila and nearby provinces experienced torrential rains and heavy flooding brought by Carina (international name: Gaemi) and the southwest monsoon.

OUTLOOK

Meanwhile, Ms. Baluch said easing inflation, as seen in the PMI data, could allow the Philippine central bank to begin cutting rates.

“Easing financial conditions should help solidify and strengthen growth in the coming months,” she noted.

“Moreover, sustained expansions in purchasing activity and the renewed uptick in workforce numbers, indicate that goods producers are likely banking on the strengthening of demand conditions in the coming months.”

The Monetary Board has kept its key policy rate at an over 17-year high of 6.5% to tame inflation. Bangko Sentral ng Pilipinas Governor Eli M. Remolona, Jr. signaled a possible rate cut at their Aug. 15 meeting.

Mr. Ricafort said the slower PMI growth “could help support/justify” a 25-basis-point rate cut as early as next week.

S&P Global said manufacturing firms expect production to increase in the next 12 months.

“The Future Output Index, which printed comfortably above the neutral 50 mark in July, indicated optimism regarding the outlook across the sector,” it said.

However, there was a slight dip in the degree of confidence as some firms remained cautious of future demand.

Security Bank Corp. Chief Economist Robert Dan J. Roces noted that manufacturing firms’ cautious optimism is reflected by their hiring activity and inventory accumulation.

“While risks such as global economic conditions and supply chain disruptions persist, the overall outlook for Philippine manufacturing remains positive, with growth expected to continue, albeit at a modest pace, in the coming months,” he said in a Viber message.

Mr. Ricafort said there is a seasonal increase in imports and production in the third quarter in preparation for higher demand in the fourth quarter.

“This would help boost manufacturing/production growth in the coming months,” he said, although business activity might slow during the “ghost month” of August. — Beatriz Marie D. Cruz

The Philippine economy likely grew faster in the second quarter amid better state spending and increased household consumption, the Department of Finance (DoF) said.

“If you’re talking about growth rate for the second quarter, I think we’re pretty optimistic. It will be higher than the first (quarter),” Finance Secretary Ralph G. Recto told reporters on the sidelines of an event late Tuesday.

In the first quarter, gross domestic product (GDP) expanded at a weaker-than-expected 5.7% due to slower consumption and state spending.

Mr. Recto said he is “crossing his fingers” that GDP growth would be above 6%, driven by consumption, government spending and lower inflation.

The government is targeting 6-7% GDP growth this year.

Headline inflation eased to 3.7% in June due to a slower rise in power and transport costs, ending four straight months of acceleration.

Last week, National Economic and Development Authority Secretary Arsenio M. Balisacan said GDP growth in the April-to-June period would likely be near the lower end of the government’s 6-7% target.

The Philippine Statistics Authority is scheduled to release second-quarter GDP growth data on Aug. 8.

Jonathan L. Ravelas, senior adviser at professional service firm Reyes Tacandong & Co., forecasts GDP growth at 6.1% in the second quarter, driven by infrastructure spending and a recovery in private spending.

However, he expects full-year growth to average at 5.8% this year, and 6.3% for 2025.

IBON Foundation Executive Director Jose Enrique A. Africa said state spending growth in the second quarter might be subdued due to debt service.

“The stimulus effect of higher government spending is also diminished to the extent that these are spent on debt service or on imported materials, equipment or contractors for infrastructure projects,” he said in a Viber message.

The National Government’s debt service bill, which refers to state payments on its domestic and foreign debt, rose by 48% to PHP 1.22 trillion in the January-to-May period from PHP 819.53 billion a year ago. — Beatriz Marie D. Cruz

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