Q2 inflation spikes on food prices

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Headline inflation increased sharply in the second quarter as higher food and petroleum prices persisted during the period, the Bangko Sentral ng Pilipinas (BSP) said on Friday.

The inflation rate accelerated to 4.4 percent in Q2 after settling at just 2.7 percent in the first quarter of the year, with the central bank attributing the steep increase to food supply issues.

“Food inflation increased largely due to some tightness in domestic supply conditions.

Meanwhile, non-food inflation was unchanged as higher inflation for petroleum prices and education was offset by lower inflation for electricity, gas and other fuels as well as rental fees,” the BSP said in its latest Inflation Report.


7.1% food inflation
Food inflation hit 7.1 percent in the second quarter as prices of all food items, except vegetables, rose at a faster pace, while non-food inflation held steady at 2.6 percent for the period. Inflation rates for transport and education were also higher.

The BSP said the baseline inflation path has shifted upward mainly due to the higher inflation outturn in May, as well as the inclusion of the potential impact of El Niño on food and utility prices. The headline inflation rate in May 2014 climbed to 4.5 percent, its highest level since November 2011, but retreated slightly to 4.4 percent in June.

“The risks to future inflation remain skewed to the upside, with potential price pressures emanating from a possible uptick in food prices due to drier weather conditions and pending petitions for adjustments in power rates,” it said.

Room for interest rate hikes
In what may be a hint of a rate hike at the Monetary Board’s next policy meeting on July 31, the central bank said prevailing inflation and output dynamics suggest that the economy can accommodate measured adjustments in interest rates.

The Monetary Board over the last three consecutive monetary policy meetings has resisted raising its benchmark interest rates, but has made adjustments to two of its policy levers to curb growth in money supply and keep inflation in check.

The policy-making body decided at its March 27 meeting to raise the reserve requirement for banks to 19 percent, then further to 20 percent at its May 8 meeting in a bid to siphon off excess liquidity from the financial system.

On June 19, the Board kept its key overnight lending and borrowing rates unchanged but increased the rate on the special deposit account facility by 25 basis points to 2.25 percent.

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

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