Philippines Inflation Likely Eased in June but Remains High, Signaling Further Rate Hikes

MANILA, Philippines — Inflation likely slowed for the second straight month in June as fuel and some food prices eased, although economists said price growth remained far above the Bangko Sentral ng Pilipinas (BSP)’s target amid lingering risks from El Niño, peso weakness and second-round effects. A poll of 12 economists conducted by The STAR yielded a median inflation forecast of 6.5 percent for June, slightly lower than the 6.8 percent print in May, but sharply higher than the 1.4 percent recorded in June last year. Forecasts ranged from 6.2 percent to seven percent. If realized, the June print would still exceed the BSP’s two to four percent target range for the fourth straight month. The Philippine Statistics Authority will release the June inflation data tomorrow. Metrobank chief economist Nicholas Mapa and RCBC chief economist Michael Ricafort both penciled in a 6.7-percent print for June. Ricafort said inflation could be slightly slower in June due largely to the sharp rollbacks in local diesel and gasoline prices over the past three months, as well as non-monetary measures such as targeted subsidies. However, he said inflation may still average around six to seven percent this year due to risks from El Niño, higher fertilizer costs, the near-record peso weakness and the continued closure of the Strait of Hormuz. BPI lead economist Emilio Neri Jr., Moody’s Analytics economist Sarah Tan, Pantheon Macroeconomics chief emerging Asia economist Miguel Chanco and Reyes Tacandong & Co. senior adviser Jonathan Ravelas all expect inflation at 6.5 percent. Neri said headline inflation likely eased as the impact of earlier fuel rollbacks continued to work through the transport component. “Headline inflation likely eased further to 6.5 percent year on year in June from 6.8 percent in May, as the bulk of the April-May fuel rollback continues to work through the transport component,” Neri said. However, he said the pace of disinflation is slowing as most of the fuel price rollbacks may have already been passed on to consumers, limiting further transport-driven relief. “The moderation in the June print may offer the BSP some near-term comfort, but is unlikely to materially alter its policy outlook,” Neri said. He said upside risks from El Niño, elevated agricultural input costs and geopolitical uncertainty suggest that the recent moderation is largely due to fuel rollbacks rather than a sustained easing in underlying inflation. Tan said energy-related price pressures likely softened in June but remained elevated. But persistently high electricity rates would likely keep overall inflation elevated and well above the BSP’s two to four percent target. Moody’s expects inflation to average 5.4 percent this year. Chanco said he expects a softer 6.5-percent print in June, driven largely by a more pronounced deceleration in food prices and a further cooling in transport inflation. Meanwhile, Ravelas said price pressures remain elevated, with food costs still the biggest driver. “Looking ahead, inflation is likely to stay above target in the near term, so policymakers will remain cautious about easing too quickly,” Ravelas said. Ateneo Center for Economic Research and Development director Ser Percival Peña-Reyes expects inflation at 6.4 percent, while Security Bank research head and chief economist Angelo Taningco penciled in a 6.3-percent print. Taningco said June inflation likely eased due to disinflationary pressures on fuel, fish and rice as well as lower meat prices. “For the second half of the year, we expect inflation to moderate at sub-six percent due to tempered global oil and food inflation thanks to US-Iran deal, which reopened the Strait of Hormuz,” he said. China Bank chief economist Domini Velasquez had the lowest forecast at 6.2 percent. Velasquez said headline inflation likely slowed for the second consecutive month in June as fuel prices fell due to easing tensions in the Middle East. Rice prices also declined month on month for a second straight month despite El Niño conditions. However, she said core inflation likely rose to 4.3 percent, breaching the BSP’s four-percent tolerance ceiling for the second month. “Looking ahead, we expect headline inflation have likely peaked last April but will remain above target until first quarter next year,” Velasquez said. She said key upside risks include the impact of El Niño on food prices and a renewed escalation in geopolitical tensions that could push oil prices higher again. “With this, we think the BSP could deliver one more 25-basis-point rate hike to help anchor inflation expectations,” Velasquez said. Inflation peaked at 7.2 percent in April before easing to 6.8 percent in May as fuel price rollbacks helped temper transport costs. The BSP raised its policy rate by 25 basis points on June 18 to 4.75 percent, its second straight hike, as it sought to keep inflation expectations anchored. On the other hand, some economists expect inflation to pick up slightly from May. PNB chief economist Alvin Arogo had the highest forecast at seven percent due to higher electricity and vegetable prices. But the sharper-than-expected drop in oil prices poses a downside risk to his estimate. HSBC Global Investment Research ASEAN economist Aris Dacanay and UnionBank chief economist Ruben Carlo Asuncion both expect inflation at 6.9 percent. Dacanay said global oil prices have fallen significantly from their peak, but domestic pump prices have yet to decline by the same degree. He also said food prices remained sticky in June as poultry and vegetable prices rose as of June 15 despite lower fuel prices, partly offset by a slight moderation in rice prices. “Looking ahead, we expect inflation to accelerate further in the second half of the year as the energy shock feeds through into food prices,” Dacanay said. “The lagged impact of fertilizer prices on food supply will likely come into the picture in the next few months, aggravating the potential damages the El Niño season may have on global food supply.” Asuncion said inflation likely remained elevated in June as easing softer global oil prices helped temper transport and electricity costs, but were offset by firm domestic price drivers. He said food inflation, particularly rice, re-emerged as a key upside driver due to higher transport and supply chain costs. He also cited the lagged pass-through from peso weakness and elevated import costs. “Given the persistence of inflation and the presence of upside risks, we expect the BSP to maintain a tightening bias in the near term,” he added. Information source: Philstar Business