Philippine July Inflation Seen Steady by Economists Amid Lingering Price Pressures

MANILA, Philippines — Inflation likely held steady in July as higher fuel, electricity and food costs were slightly offset by lower rice and other food prices, economists said. A poll of 13 economists conducted by The STAR yielded a median forecast of 6.4 percent for July inflation, unchanged from June, but much faster than the 0.9 percent recorded in July last year. Forecasts ranged from six to 6.8 percent. If realized, inflation would remain above the Bangko Sentral ng Pilipinas (BSP)’s two to four percent target range for a fifth straight month. The Philippine Statistics Authority is scheduled to release the July inflation data on Aug. 5. Jonathan Ravelas, senior adviser at Reyes Tacandong & Co., had the highest forecast at 6.8 percent, largely due to higher food prices, weather-related supply disruptions, elevated transport and logistics costs as well as the lingering effects of earlier peso weakness. He also said core inflation likely continued to edge up, suggesting that price pressures are becoming more broad-based as businesses pass on higher operating costs. For Ravelas, this keeps the BSP in a cautious position. “While supporting growth remains important, an inflation print near 6.8 percent and a continuing rise in core inflation reinforce the need to keep monetary policy restrictive for longer to ensure inflation expectations remain anchored,” he said. “Simply put, the fight against inflation is not yet over, and the BSP is likely to prioritize price stability before considering any policy easing,” he added. UnionBank chief economist Ruben Carlo Asuncion expects inflation at 6.7 percent amid “renewed pressures from selected food items, utilities and the lingering pass-through of higher fuel and transport costs.” Asuncion said another rate hike at the Aug. 27 Monetary Board meeting remains his base case, especially if no durable US-Iran ceasefire emerges and oil prices stay elevated. “A still-resilient domestic demand environment, together with risks from El Niño-related supply disruptions and wage hike pass-through effects, should sustain the central bank’s tightening bias in the near term,” he said. RCBC chief economist Michael Ricafort penciled in a 6.6-percent print for July, citing higher global and local oil prices after the decline in June was erased by renewed US-Iran tensions. He also cited the impact of higher minimum wages in Metro Manila, higher electricity rates, the peso’s depreciation since the conflict in the Middle East started, elevated palay farmgate prices and strong El Niño risks. Metrobank chief economist Nicholas Mapa and ANZ Research both expect inflation at 6.5 percent. Mapa said faster inflation in rice, electricity and fish likely pushed up the July print, although most other food items showed slower inflation compared with the previous month. ANZ Research also said transport inflation likely stayed elevated on a year-on-year basis, even as oil prices were lower than the levels reached in April. “Elevated food prices and second-round effects stemming from higher fuel prices are key inflation risks to monitor,” ANZ said. PNB chief economist Alvin Arogo and ING Bank expect inflation to remain unchanged at 6.4 percent. Arogo said higher petroleum and electricity costs may have been offset by lower prices of major food commodities such as rice and vegetables. ING likewise said food inflation likely eased, with lower rice prices providing relief after the sharp increase in June. However, fuel inflation likely continued to edge higher due to increases in retail pump prices, while services inflation remained sticky. HSBC Global Investment Research ASEAN economist Aris Dacanay and Security Bank chief economist Angelo Taningco both expect inflation to have eased to 6.3 percent. Dacanay said the recent surge in diesel prices due to renewed tensions in the Middle East materialized only in the last 10 days of July, while fuel prices were relatively benign earlier in the month. “Electricity rates, however, increased by two percent. This was largely offset by the gradual moderation in key food items: retail rice prices fell by a few centavos per kilogram, alongside a drop in pork prices,” Dacanay said. He said inflation risks remain tilted to the upside, citing the lagged impact of higher fertilizer prices on food, the high likelihood of a strong El Niño in the fourth quarter and uncertainty over peace talks in the Middle East. Security Bank’s Taningco said upward inflation pressures may have come from higher local diesel and gasoline prices after the global oil price rebound, as well as mid-teens growth in rice prices. “Downward inflationary pressures may be evident in meat and vegetables,” he said, adding that core inflation could remain above four percent due to sticky prices from accommodation, restaurants and other service providers. “Because of inflation being elevated and above the BSP’s target, (we are) still expecting the BSP to raise the policy rate for a third time by 25 basis points at its next monetary policy meeting in August,” he said. The BSP raised its benchmark rate by 25 basis points to 4.75 percent on June 18, its second straight hike this year, as inflation remained above target and policymakers sought to keep inflation expectations anchored. Ateneo Center for Economic Research and Development director Ser Percival Peña-Reyes, BPI lead economist Emilio Neri Jr. and China Bank chief economist Domini Velasquez all expect inflation at 6.2 percent. Neri said headline inflation likely eased in July as food inflation stayed relatively contained amid continued improvements in rice supply. However, higher electricity rates and domestic fuel prices pushed up energy-related costs. “Underlying price pressures also remain persistent, as core inflation has continued to trend higher,” Neri said. He cited the ongoing Super El Niño, elevated fertilizer costs, the first tranche of the P85 daily minimum wage hike in the National Capital Region, renewed geopolitical risk premiums and rising producer prices in China as upside risks to inflation. “As such, we expect the BSP to maintain a hawkish bias to prevent inflation expectations from becoming de-anchored while also providing support to the peso amid an uncertain external environment,” Neri said. Velasquez said inflation likely eased for a fourth straight month to 6.2 percent in July as rice prices continued to decline month on month despite El Niño concerns. Pantheon Macroeconomics chief emerging Asia economist Miguel Chanco had the lowest forecast at six percent due to lower food inflation. He said transport inflation likely held steady from June at close to 13 percent due to renewed upward pressure on fuel prices.