Food prices may push July inflation to 2.1%

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Headline inflation in July might have surged to 2.1 percent from the 14-month high of 1.9 percent in June or 0.8 percent a year ago, a consensus estimate drawn from a poll The Manila Times conducted among government officials and private sector analysts shows.

While the Philippine Statistics Authority is scheduled to release the inflation data this Friday, five analysts—from ANZ Research, IHS Global Insight, Bank of the Philippine Islands (BPI), Standard Chartered Bank, and Ateneo de Manila University (AdMU)—shared a consensus view that inflation in July might have spiked to 2.1 percent with ANZ Research economist Eugenia Victorino pointing out that food prices, specifically those that are locally produced, have likely maintained the upward trend.

The Department of Finance (DOF), however, is of the view that July inflation will remain at the June level of 1.6 percent whereas the Bangko Sentral ng Pilipinas (BSP) thinks July inflation could settle within a range of 1.5 percent to 2.4 percent.

The rate of increase in consumer prices likely steadied at 1.9 percent last month as the slowdown in food and education costs would offset the general rise in prices of other widely used goods, said the DOF in its July economic bulletin.


“The price index of big-ticket item housing, utilities and fuels group is expected to inch up as base effects are being exhausted,” said Finance Undersecretary Gil Beltran in a report submitted to Finance Secretary Carlos Dominguez 3rd.

Beltran noted that the rates imposed by electricity distributor Meralco increased by 3.4 percent in July compared with the previous month, but also added that “the slowing down in food price and education prices, however, may serve as a counter-balance.” In his view, the general price level is expected to be stable in the near term, giving policy makers ample room for maneuver against external shocks.

Based on the DOF’s estimate, the food price index is seen rising by 2.5 percent in July, slower pace than the previous month’s 2.9 percent.

Meanwhile, the BSP governor, Amando Tetangco Jr., said in a text message: “Upside inflation pressures from the upward adjustment in power rates in the Meralco-serviced areas and higher rice prices along with the weaker peso could be partly offset by lower water rates, reduction in domestic oil prices, and decline in vegetable prices during the month.”

“Going forward, the BSP will remain watchful of evolving price trends to ensure price stability conducive to a balanced and sustainable economic growth,” he said.

Poll
Of the 10 analysts surveyed by the Times, DBS economist Gundy Cahyadi provided the highest estimate for July inflation of 2.2 percent. “Inflation is set to continue ticking higher towards the year-end, partly due to the low base effects as well as pressure from food prices,” he said, noting that the BSP is unlikely to react too much to this data alone.

According to ANZ Research economist Eugenia Victorino, “While we expect headline inflation to maintain its ascent through the end of 2016, we see little risk of average inflation breaching the central bank’s 2 percent to 4 percent target range. As such, we expect the central bank to remain on the sidelines with regard to its interest rate policy and we hold on to our forecast for the central bank to tighten its policy rate by the second quarter of 2017.”

Rajiv Biswas, IHS Global Insight Asia-Pacific chief economist also thinks that inflation is expected to edge upward in July due to higher utilities charges for electricity as well as higher rice prices, although the impact is expected to be partly offset by lower retail prices for gasoline and diesel in July.

“With Philippines GDP [gross domestic product]showing strong expansion during the first half of 2016 and CPI [consumer price index]inflationary pressures still towards the lower end of the BSP inflation target range, the BSP is expected to keep policy rates on hold at its next monetary policy meeting,” he added.

With 2.1 percent July inflation, BPI associate economist Nicholas Antonio Mapa said he expects “no change from the BSP in any of its tools as year-to-date inflation is at roughly 1.4 percent after this print.”

StanChart economist Chidu Narayanan and AdMU Department of Economics professor Alvin Ang, however, did not provide explanations for their 2.1 percent forecast.

On the other hand, Joey Cuyegkeng, the senior economist at ING Bank Manila, Mabellene Reynaldo, analyst at Metrobank Research, and Jonathan Ravelas, BDO chief market strategist were of the view that inflation likely stayed flat at 1.9 percent in July.

A stark contrast in the forecast came from A&A Securities’ Justino Calaycay Jr. He estimated the July inflation to range between 1.3 percent and 1.7 percent. “[This] should keep us still below even the lower end of the target band. I don’t think this will impact the BSP monetary stance which means rates will be held steady,” he added.

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