Analysts: July inflation down at 0.7% – 1%


5 of them reach consensus at 0.8%

A decline in domestic fuel and electricity prices likely curbed the rise in consumer prices in July to bring headline inflation to its slowest rate in 20 years at between 0.7 percent and 1 percent, nine analysts polled by The Manila Times said.

Among them, analysts from five institutions reached a consensus forecast of 0.8 percent for the month.


The range of forecasts compares with June’s 1.2 percent rate and falls within the central bank’s expected range of 0.5 percent to 1.3 percent for July.

The Philippine Statistics Authority is releasing the official inflation data today, Wednesday.

Analysts from the University of Asia and the Pacific (UA&P), Metrobank Research, Security Bank Corp., banking giant HSBC and United Kingdom-based investment bank Barclays all forecast a rate of 0.8 percent for the month.

UA&P economist Victor Abola said a 0.8 percent inflation rate in July “should lead to an easing of monetary policy, especially with moderate growth in the United States.”
“But given the conservatism of the BSP [Bangko Sentral ng Pilipinas], they won’t do anything,” he added.

Seeing a higher rate of 0.9 percent, ING Bank Manila senior economist Joey Cuyegkeng stressed that disinflation could become a concern.

The ING Bank economist added, however, that price pressures from the El Nino weather conditions expected in the fourth quarter and in the first quarter of 2016 could also pose a dominant risk, which could prompt a call for a steady monetary policy until the end of this year.

“Monetary policy is not likely to ease to support economic growth at this month’s BSP-MB [Monetary Board] meeting even as inflation is likely to drop below 1 percent in July-August,” Cuyegkeng said.

Nicholas Antonio Mapa, associate economist at the Bank of the Philippine Islands, expects to see inflation easing from June to 0.9 percent in July, but does not expect that rate to affect monetary policy.

“BSP officials have flagged that inflation should remain within the fiscal year target range of 2 percent to 4 percent by year-end,” he said.

An equities analyst from Accord Capital Equities Corp. estimates July inflation at between 0.7 percent and 1 percent, with the fall in domestic pump prices of oil as the biggest factor for the slowdown.

Justino Calaycay Jr. of Accord said domestic fuel prices have dramatically fallen year-on-year by about 10 percent and would be the biggest contributor to the slower inflation number. Lower electricity rates were another factor, he added.

“Furthermore, July isn’t exactly a spending-heavy month, with most households having booked their pre-enrollment expenses the previous month—more so with some universities having moved the Academic Year to August-September,” the analyst said.

Calaycay added that while this would give the BSP some legroom for a possible upward rate adjustment given the imminent hike in US interest rates this year—at least with respect to “protecting” the currency—the central bank would be somewhat wary of a sustained drop in inflation numbers.

“We will have to keep a close watch on spending levels—both private and public — and see whether the present supply side pressures would influence the demand side dramatically.

What the BSP wouldn’t want to happen is for the situation to spiral into a deflation—as, in fact, we are already experiencing ‘disinflation,’” he said.

Lastly, Luz Lorenzo, an economist at Maybank ATR Kim Eng, sees July inflation settling at 1 percent, but said she does not expect any change in the monetary stance of the central bank.

BSP target range
Earlier, the BSP said it was expecting July inflation averaging somewhere between 0.5 percent and 1.3 percent.

“Downward pressures could come from lower local pump prices and power rates for the month,” BSP Governor Amando Tetangco Jr. had said.

In June, headline inflation posted its sharpest drop in two decades at 1.2 percent from 1.6 percent in May and 4.4 percent a year-earlier. It was the slowest pace of inflation since 1995.

For the whole of 2015, the central bank projects headline inflation to average 2.1 percent before the rate picks up pace to 2.5 percent in 2016.


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