Inflation grows to 4.6% in July-Aug from 4.4% in Q2

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Q3_INFLATION[1]-BDKHeadline inflation accelerated to 4.6 percent in the two months to August from 4.4 percent in the full second quarter because of a persistent rise in food prices, the central bank said on Friday.

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The rise in consumer price index (CPI) was even faster compared with the 2.4 percent inflation recorded in the third quarter a year earlier, the Bangko Sentral ng Pilipinas (BSP) said in its Third Quarter 2014 Inflation Report just released.

The BSP stressed that the new inflation figure rate only covered the period July to August, with the rate for September yet to be released on October 7.

“In this report, the quarterly inflation rates (headline, core, food and non-food inflation) for Q3 2014 were computed as the year-on-year change in the Average CPI for July-August 2014 relative to the average CPI for July-September 2013,” the BSP explained.

Food supply bottleneck

During the quarter, food inflation moved up faster largely to tight domestic supply conditions triggered by weather-related disturbances and supply-side bottlenecks, it said.

Food inflation stepped up to 8.2 percent in the third quarter from the quarter-ago rate of 7.1 percent as the prices of all food items, except rice, increased at a faster pace.

Non-food inflation decelerated as a result mainly of reductions in the prices of domestic petroleum products due to favorable inventories overseas, the BSP added.

Non-food inflation slowed to 2.4 percent during the quarter from 2.6 percent in the previous quarter as a result of slower price increases of electricity, gas and other fuels, it said.

Upside pressures emerging

The central bank said inflation is expected to remain within the target range this year, even as upside inflation pressures have emerged.

Central projections indicate that inflation will be above the midpoint of the 3 percent to 5 percent range for 2014. For 2015, the forecasts suggest that inflation could approach the upper-end of the 2 percent to 4 percent target range before easing to around the midpoint of the target range in 2016, which is also at 2 percent to 4 percent.

“The balance of risks to future inflation remains tilted to the upside.

Possible upticks in food prices as a result of tight domestic supply conditions, delays in shipments due to port congestion, pending petitions for adjustments in utility rates, and looming power shortages pose upside risks to inflation,” it said.

There has been no considerable evidence of second-round effects from higher food prices at present, but the central bank said protracted supply shocks amid strong demand conditions can also potentially increase the impetus for second-round effects, thus calling for firmer policy responses to safeguard the inflation target.

“The buoyancy of domestic demand suggests that there is ample space for calibrated policy responses to potential second-round effects,” it said.

The BSP noted that favorable growth dynamics imply that monetary authorities have some flexibility to undertake measured monetary policy tightening.

At the same time, it said responding preemptively to elevated inflation risks will also provide latitude to assess at future meetings the evolving balance of risks to both inflation and output, which will reduce the need for sharp adjustments later on.

“The BSP stands ready to undertake further policy actions as necessary to safeguard its price and financial stability objectives,” it added.

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