No change in interest rates seen

June inflation likely higher – analysts

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Headline inflation in June may have ticked slightly higher than the previous month, with a median estimate of 1.8 percent emerging from a poll of regulators and analysts versus May’s 1.6 percent print and the 1.2 percent inflation rate in June last year.

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Government officials and analysts surveyed by The Manila Times provided a forecast range of 1.5 percent to 2.1 percent, with all but the Bangko Sentral ng Pilipinas (BSP) seeing inflation at 1.7 percent or higher on higher tuition, rice, and vegetable prices despite the prevailing low oil prices.

The BSP said inflation in June could settle within a range of 1.5 percent to 2.4 percent, while the Department of Finance (DOF) projected the rate to pick up to 1.8 percent.

Inflation climbed to 1.6 percent in May from 1.1 percent in April. A year ago, the inflation rate stood at 1.2 percent. Data for June 2016 is scheduled to be released by the Philippine Statistics Authority on Tuesday, July 5.

Meanwhile, analysts polled by The Manila Times offered a range of 1.7 percent to 2.1
percent inflation rate in June, predicting that the BSP will keep interest rates steady at its next monetary policy meeting.

“Upside inflation pressures could come from the increase in tuition fees as well as in rice and vegetable prices which could be partly offset by the decline in electricity rates and domestic oil prices for the month,” Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr. said.

“Inflation rate for this month may inch to 1.8 percent on account of higher food price increase (largely due to vegetables) and possibly higher price increase in the education sub-group,” the DOF, meanwhile, said in its latest Economic Bulletin for the month of June.

In early June, the Commission on Higher Education (CHED) said it approved an increase in tuition and other school fees in 304 private colleges and universities across the country for the academic year 2016 to 2017.

Of the 304 schools, 280 or 17 percent schools nationwide will increase tuition, while 252 or 15 percent will increase other school fees this year.

The Finance department said lower year-on-year fuel and power prices continue to temper inflation.

This month saw Manila Electric Co. (Meralco) rates hit their seven-year low, while current fuel prices are still significantly lower than last year.

“Going forward, the BSP will continue to monitor evolving price trends to ensure price stability conducive to a balanced and sustainable economic growth,” Tetangco said.

For the DOF, benign inflation will enable the country to maintain a monetary policy stance that allows continued rapid growth within the targeted 6.8 percent to 7.8 percent GDP growth range.

“This also strengthens the country’s capability to manage risks arising from external shocks including the Brexit and the Fed normalization,” it added.

Poll

Three of the 10 analysts polled by the Times said inflation last month likely breached the 2-percent level.

Alvin Ang, professor at the Ateneo de Manila’s Department of Economics provided the highest estimate of 2.1 percent on higher tuition amid the 2016 school-year opening in June.

Mabellene Reynaldo, analyst at Metrobank Research, forecast June inflation rate at 2 percent, driven by the surge in food prices, steady oil prices, and low base.

“We expect policy rates to remain steady until year end,” she said.

Rajiv Biswas, IHS Global Insight Asia-Pacific chief economist said inflation is expected to pick up in June to 2 percent on higher oil prices and some impact of the El Niño drought effect on food prices, as well as base year effects of very low inflation a year ago, when oil prices were slumping.

“Despite recent increases in CPI [consumer price index]inflation, the headline CPI is expected to be within the BSP’s inflation target range in coming months. With domestic CPI inflation still moderate and global central banks having heightened concerns about the impact of the UK’s Brexit vote on the UK and EU economies and on global financial markets, the BSP is expected to remain on hold at its next monetary policy meeting,” he said.

Meanwhile, analysts from Bank of the Philippine Islands (BPI), banking giant HSBC, and ANZ Research shared the same forecast of 1.9 percent.

Nicholas Antonio Mapa, BPI associate economist, noted that the oil price drag continues to wane while food prices trend higher given the El Niño effect on crop production.

“This slight upward trajectory is in-line with forecasts and expectation that inflation will return to within target and bring year-to-date inflation at the lower end of the BSP’s inflation band of 2 percent to 4 percent,” he said.

Mapa added that monetary policy is expected to remain unchanged as BSP sits tight, monitors the developments in relation to Brexit, and wields the full weight of its newly minted Interest Rate Corridor.

“BSP will only be called into action should medium term inflation trends threaten the higher-end of the BSP’s inflation target while growth is expected to remain robust on strong household consumption,” he added.

Joseph Incalcaterra, Asia-Pacific economist for HSBC, said his forecast was because of higher domestic gasoline prices and moderate sequential food inflation.

“We do not think the BSP will be changing its monetary stance anytime soon. While there is increased uncertainty concerning global growth, the Philippines is well-insulated from slowing external demand and there is no need for imminent easing, despite the tepid inflation outlook,” he pointed out.

Eugenia Victorino, ANZ Research economist, said weakness in agriculture likely led to a rise in locally produced food items.

“Retail oil pump prices have also slowly been rising on the back to global price trend,” she stated.

Another set of economists, on the other hand, agreed with the DOF that inflation likely accelerated to 1.8 percent in June.

Diana del Rosario, Deutsche Bank economist, said inflation likely climbed 20 basis point over the previous month to 1.8 percent in June, “on the back of modest increases in the prices of food and other items such as education, healthcare, and household maintenance.”

Luz Lorenzo, Maybank ATR Kim Eng economist, said her projection is due to higher food and fuel inflation and will have no impact on BSP stance.

Gundy Cahyadi, DBS economist, expects inflation to have ticked up more markedly in June as effects from low oil price dissipate.

“Food prices have also ticked up quite a bit, similar to what’s seen in the region, partly due to the weather. We don’t think the BSP will do anything for now, but we still have them raising rates in early 2017,” he said.

Providing the lowest estimate of 1.7 percent is Banco de Oro chief market strategist Jonathan Ravelas, who also said the BSP policy stance will remain unchanged.

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