Poll: Inflation likely slowed in July

Headline inflation likely fell to a near six-year low in July due to softer prices of food and fuel, analysts said.

A BusinessWorld poll of 17 analysts yielded a median estimate of 1.2% for the July consumer price index, within the central bank’s 0.5%-to-1.3% forecast for the month.

The July print would be slower than the 1.4% in June and 4.4% clip a year ago.

If realized, this would be the slowest inflation in nearly six years or since the 0.6% print posted in October 2019.

The Philippine Statistics Authority is scheduled to release the July inflation data on Tuesday (Aug. 5).

“For July inflation, my forecast is 1.2% and drivers continue to be soft food prices and muted nonfood prices, especially in energy despite some pump price adjustments of late,” Sun Life Investment Management and Trust Corp. economist Patrick M. Ella said.

In July, pump price adjustments stood at a net decrease of P1.10 a liter for gasoline and P1.10 a liter for kerosene. On the other hand, it stood at a net increase of P1.20 for diesel.

Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said the headline rate may have slowed in July “thanks to what should be a drop in food inflation into the red, outright.”

“Food and energy prices will likely remain subdued, although the impact of lower rice tariffs, which took effect in late June 2024, will fade from annual comparisons,” Moody’s Analytics economist Denise Cheok said.

Nicholas Antonio T. Mapa, chief economist at Metropolitan Bank & Trust Co. said July will likely mark the fifth straight month of below-target inflation this year as rice deflation persists.

Rice inflation has been on the decline in the last few months as the government has deployed several measures to tame prices of the staple grain. These include slashing tariffs on rice imports, declaring a food security emergency on the commodity, and lowering the maximum suggested retail price (MSRP) for imported rice.

In June, rice inflation decelerated for the sixth straight month to a record 14.3%, the biggest drop since 1995.

“Moreover, the high base effect (given that inflation peaked at 4.4% in July 2024) is expected to help keep the year-on-year figure subdued despite the monthly increase,” Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort also noted the one-year anniversary of the tariff cut on rice imports, which were slashed to 15% from 35% in July 2024.

“Base effects likely played a huge role but retail prices, too, remained manageable month on month,” HSBC economist for ASEAN Aris D. Dacanay said.

“Softer prices of rice, fruits, and LPG may have also contributed to the slowdown, though these may have been tempered by higher costs of fuel, electricity, and other key food items such as vegetables, meat, fish, eggs, and cooking oil,” Chinabank Research said.

Analysts also noted the upside risks to the inflation print for the month.

“The uptick was mainly driven by higher oil prices, electricity rates, and select food items such as vegetables, fish, and meat,” Mr. Neri said.

Manila Electric Co. (Meralco) hiked rates by P0.4883 per kilowatt-hour (kWh) in July, bringing the overall rate for a typical household to P12.6435 per kWh from P12.1552 per kWh a month earlier.

“Upward price pressures were seen, however, in electricity rates and diesel but we don’t think these were enough to offset the deflationary pressures from rice and gas,” Mr. Dacanay said.

Bad weather

Meanwhile, some analysts surveyed expect July inflation to accelerate from a month ago as bad weather disrupted economic activity in key areas.

“The uptick is driven by lagged effects of food and transport costs, weather-related supply disruptions from early monsoon and typhoon activity, and seasonal demand linked to school openings and midyear bonuses,” Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, said.

The latest data from the Department of Agriculture showed damage to the agriculture sector from three successive tropical storms and the southwest monsoon has climbed to PHP 3 billion.

“The recent wave of typhoons and bad weather may have also affected domestic supply chains especially for food, which may have caused the price increases,” Oikonomia Advisory & Research, Inc. economist Reinielle Matt M. Erece added.

Mr. Asuncion also noted exchange rate movements influenced import prices.

The peso fell to PHP 58.32 against the greenback at end-July from its finish of PHP 56.33 at end-June. The peso’s close at end-July was its weakest in almost six months or since its PHP 58.34 finish on Feb. 4.

Further easing?

With inflation still below the 2-4% target, analysts said the Bangko Sentral ng Pilipinas (BSP) has more than enough room to continue on its rate-cutting cycle.

“Inflation remains below target and is forecast to remain within target over the policy horizon, giving BSP ample space to cut rates and support moderating growth momentum,” Mr. Mapa said.

Chinabank Research expects the central bank to deliver another 25-bp cut at its meeting later this month.

“With inflation possibly falling to its lowest since October 2019 — and average inflation expected to remain below target this year — we think the BSP has room to continue easing monetary policy with a 25-bp rate cut at its August meeting,” it said.

The Monetary Board’s next meeting is on Aug. 28.

“We’re currently looking at a 25-bp rate cut from the BSP this month, as the window for easing could likely narrow starting in the fourth quarter, with headline inflation seen rebounding toward the 3% level, and possibly even higher in 2026,” Mr. Neri said.

BSP Governor Eli M. Remolona, Jr. has said a rate cut is still on the table at their policy review later this month.

“The BSP may continue its policy easing with another 25-bp cut in their next meeting. This is as inflation continues to be below the 2% target and gross domestic product (GDP) growth is still expected to be below the ideal 6% growth or faster,” Mr. Erece said.

Chinabank said a weaker-than-expected second-quarter GDP print would likely further strengthen the case for a cut.

Meanwhile, Security Bank Corp. Vice-President and Research Division Head Angelo B. Taningco said there is a possibility that the BSP could hold rates this month.

“We still expect further monetary easing but may not be immediate for this month of August as the recent and expected peso depreciation could weigh on it,” he said.

The central bank could also remain cautious moving forward, analysts said.

“Subsequent moves following a potential August cut are expected to be more measured, with our in-house view seeing further reductions in the fourth quarter as less likely,” Mr. Neri said.

He cited inflation risks, a prolonged hawkish stance from the Federal Reserve and substantial current account deficit, which could constrain the BSP’s flexibility in adjusting monetary policy.

“A pause in the fourth quarter may be warranted to help manage pressure on the local currency,” Mr. Neri added.

Mr. Ella said a rate cut in the fourth quarter is possible “if growth will surprise on the downside due to trailing impact of global tariffs.”

“The BSP will be closely monitoring potential inflationary pressures stemming from geopolitical tensions and tariff-related supply-chain disruptions,” Ms. Cheok added.

Mr. Chanco expects the Monetary Board to cut at least twice before the year ends.

Mr. Remolona earlier said he is keeping to his outlook for two more rate cuts this year. After August, the Monetary Board has two remaining meetings scheduled for October and December.

“Moving forward, inflation will likely begin its steady climb as the favorable base effects from lower rice prices fade,” Mr. Dacanay said.

“Nonetheless, with inflation staying within the lower-end range of the BSP target band, there is room for the BSP to continue its easing cycle and, perhaps, deepen the cycle further in the last five months of the year.” — Luisa Maria Jacinta C. Jocson, Senior Reporter