June inflation hits 14-mth high

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RISING prices of rice, vegetables, fish and meat in the Philippines, coupled with the high cost of electricity and tuition fee hikes in most regions, pushed up inflation to 1.9 percent in June, the highest in 14 months.

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Data from the Philippine Statistics Authority (PSA) shows the rate rose from 1.6 percent in May and 1.2 percent in June 2015.

Fourteen months ago, in April 2015, inflation stood at 2.2 percent.

Core inflation, which excludes food and energy prices, also climbed to 1.9 percent from 1.6 percent in May. In June 2015, core inflation stood at 2 percent.

According to the Philippine Statistic Authority, “increments in the prices of kerosene, LPG [liquefied petroleum gas]and selected construction materials were also noted in many provinces during the month,” besides the rising prices of basic food items and electricity.

The inflation rate in June was higher than the 1.8 percent estimate of the Department of Finance. It was within the 1.5 percent to 2.4 percent range the Bangko Sentral ng Pilipinas (BSP) had estimated for the month and within the 1.7 percent to 2.1 percent range private-sector analysts polled by The Manila Times projected.

Inflation for the first half of 2016 averaged 1.3 percent, below the BSP’s 2 percent to 4 percent target for the year.

El Niño, oil prices effects
The National Economic and Development Authority (NEDA) said the rise in inflation could be attributed to the residual effects of the weakening El Niño and the slight recovery of oil prices.

“But the inflation trend in the first six months of 2016 was manageable. This is expected to continue for the rest of the year against a backdrop of the expanding productive capacity of the domestic economy and persistently low oil prices,” said Socioeconomic Planning Secretary Ernesto Pernia.

Rising prices in housing, water, electricity, gas, and other fuels drove inflation in the non-food group to 0.9 percent. Inflation in June also adjusted to the rise of oil prices for 2016, NEDA reported.

“International oil prices have yet to recover, but as global demand improves alongside the pressures brought by the Canada wild fires and the political unrest in Nigeria, the biggest oil exporter in Africa, oil prices have reached their highest level in 2016,” Pernia, who is also the NEDA director general, said.

The agency also noted that food inflation rose by 3.0 percent in June 2016 as the lingering, though waning, effects of the El Niño caused a further uptick in prices of vegetables, livestock, and other food commodities.

On the other hand, NEDA said rice registered a year-on-year deflation of -0.5 percent in June 2016 but prices picked up slightly by 0.2 percent from the previous month as the El Niño-related drought continued to negatively affect rice production.

Slight increase seen ahead
A Bank of the Philippine Islands (BPI) analyst said the below-target print in June was tied to the protracted energy slump, which continues to feed into the rest of the consumer price index basket, most notably in utilities and LPG prices.

However, BPI associate economist Nicholas Antonio Mapa explained, “We must note that core inflation has begun to trend higher. Pressure for the slight acceleration in price trends emanated from food and tuition price increases as well as the waning effects of the protracted oil price slump.”

Inflation should trend back into the government’s target range, Mapa said, increasing slightly to 2 percent for the full-year 2016, right at the lower end of the 2 percent to 4 percent target.

No change in interest rates
Mapa added that the BSP is expected to stand pat on interest rates at its next Monetary Board meeting, as inflation remains subdued while domestic activity remains vibrant.

“BSP will also look to wield the full weight of its newly minted interest rate corridor system to smooth out any volatility that may ensue from the Brexit fallout and possible banking system stress in Europe,” he added.

The central bank confirmed Mapa’s view, saying that it sees no need to change its policy stance. BSP Governor Amando Tetengco Jr. said, “This June inflation turnout is consistent with our assessment that over the policy horizon, monthly inflation will move to within target, although for 2016 we still see full year average to be just below/around the low end of the national government target range.”

“Therefore we see no need to change the stance of monetary policy for now,” he said in a text message to reporters.

However, Tetangco stressed that the central bank will continue to monitor developments, particularly the policy actions of advanced economies including the Fed, in light of the recent Brexit.

“The market will also continue to monitor how the economic team will implement the government’s policy agenda,” Tetangco said.

La Niña preparations
NEDA’s Pernia said government should start preparing for the upcoming La Niña, which typically brings wet conditions, while farmers recover from the impact of the El Niño phenomenon.

“We should intensify monitoring of the status of flood control projects and the clearing of drains and waterways. We also need to improve the agriculture logistics chain by constructing more bridges to connect farming areas separated from markets by rivers that are non-traversable during the rainy days,” he concluded.

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