BSP expects June inflation at 2.4%-3.2%


HEADLINE inflation may settle at a slower pace of 2.4 percent, or faster at 3.2 percent, in June from 3.1 percent in May, according to the Bangko Sentral ng Pilipinas (BSP), factoring in power rates and oil prices.

The central bank’s estimates indicate an uptick from 1.9 percent a year earlier. The rate last May was slowest rise in prices since clocking in at 2.7 percent in January.

“The decline in domestic fuel prices and lower electricity rates in Meralco-serviced areas could lead to lower price pressures for the month,” outgoing Bangko Sentral Governor Amando Tetangco Jr. said in a text message to reporters.

On the other hand, analysts estimated that inflation last month hit 3 percent. The Philippine Statistics Authority is releasing the June inflation data on July 5, Wednesday.

Five analysts polled by The Manila Times gave a 2.8 percent to 3.2 percent forest range for an average of 3 percent.

DBS economist Gundy Cahyadi and Banco de Oro Unibank market strategist Jonathan Ravelas placed last month’s inflation rate at 3.2 percent.

ANZ Research and IHS Markit noted inflation must have hit 2.9 percent.

“Philippines’ headline inflation likely continued to decline, reaching 2.9 percent year-on-year in June. Oil prices remained under downward pressure,” ANZ Research Economist Eugenia Victorino said.

Domestic petroleum companies imposed four oil price rollbacks last month.

The Manila Electric Co. (Meralco) said earlier electricity bills for a typical household would decrease by P1.43 per kilowatt-hour (kWh) in June, bringing the overall household rate to P8.17 per kWh from P9.60 per kWh in May.

Considering that headline inflation likely peaked in April at 3.4 percent, Victorino noted that ANZ expects inflation this year to settle midpoint of the central bank’s target of 2 percent to 4 percent.

“This will likely provide the BSP room to delay tightening monetary conditions. Yet, credit growth continues to accelerate. Thus, the bias should still be a tightening of credit conditions,” she said.

Rajiv Biswas, Asia-Pacific chief economist at IHS Markit, said inflation pressures were expected to have eased further in June, helped by lower petrol prices in recent weeks.

“Further declines in world oil prices during June have resulted in some lowering of retail petrol prices, helping to lower CPI [consumer price index]inflation pressures. The headline CPI inflation rate for June is forecast to moderate further to 2.9 percent year-on-year, after having eased to 3.1 percent in May,” he said.

Biswas expects inflationary pressures to stabilize within the central bank’s target range in the second half of 2017.

“High global oil inventories and increasing US oil production have helped to constrain world oil prices in recent weeks, contributing to lower headline CPI inflation pressures,” he said.

Consequently, the Bangko Sentral’s monetary policy stance is still expected have a tightening bias.

“While the US Fed is expected to hike rates two more times in 2017, the BSP’s own monetary policy decision will focus on trends in domestic inflation and GDP growth momentum in the Philippines, rather than US Fed policy moves,” Biswas said.

Land Bank of the Philippines market economist Guian Angelo Dumalagan provided the lowest estimate of 2.8 percent, saying lower oil prices would offset upward pressures from a weaker peso and higher food prices—especially fish and rice. “Oil prices in the international market fell by about 6 percent from year ago, while the peso weakened against the dollar by about 7 percent over the same period,” he said.

The peso is now trading above the psychologically important P50:$1 level it hit for the first time this year on February 18.

The slower-than-expected trend in headline inflation could give the BSP more room to keep policy rates steady, despite the gradual tightening of US monetary policy, Dumalagan noted.

“While soft inflation increases the chances of steady policy settings for the rest of the year, it does not preclude the possibility of a rate hike from the BSP, especially if inflation picks up unexpectedly or if the US Federal Reserve suddenly signals a faster pace of interest rate normalization,” he said.

“Moving forward, the BSP will continue to monitor evolving price conditions and adjust policy settings appropriately to ensure price stability conducive to balanced and sustained economic growth,” Tetangco said.


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