INFLATION picked up in July, the government reported on Friday, driven by non-food items such as higher transport sector prices.
At 2,8 percent, July inflation was marginally higher than June’s revised 2,7 percent. A year earlier it was a much lower 1.9 percent, based on Philippine Statistics Authority data.
Socioeconomic Planning Secretary Ernesto Pernia primarily attributed the increase to higher railway prices arising from adjustments – the first in 20 years – that were implemented by state-owned Philippine National Railways.
Price hikes for unleaded gasoline, diesel, kerosene and liquefied petroleum gas also contributed, he said.
Non-food inflation subsequently accelerated to 2.4 percent from 1.9 percent in June, offsetting a slowdown – to 3.3 percent and the lowest since January this year – for the food subgroup.
The PSA tagged the following commodity groups: housing, water, electricity, gas and other fuels (2.2 percent); transport (3.8 percent); education (2.3 percent); and restaurant and miscellaneous goods and services (2.1 percent) as having driven July inflation.
Furnishing, household equipment and routine household maintenance – in addition to food and alcoholic beverages – was the only other commodity group to post slower price hikes.
The rest “retained their previous month’s rates,” the PSA said.
Core inflation, however, slowed to 2.1 percent in July from 2.6 percent the previous month. It was 1.9 percent a year earlier.
The latest reading pushed year-to-date inflation to a headline reading of 3.1 percent, within the government’s 2-4 percent target.
Core inflation for the period settled to 2.7 percent.
Analysts polled by The Manila Times had expected July inflation in July to stand between 2.7 percent and 3 percent.
Price increases, the Bangko Sentral ng Pilipinas said, are expected to remain manageable given the July result.
“Inflation is projected to remain close to the midpoint of the national government’s range target of 3.0 percent ± 1.0 percentage point in 2017 to 2019,” central bank Governor Nestor Espenilla Jr. said in a statement.
The policy-making Monetary Board last month revised its 2017 inflation forecast to 3.1 percent from 3.4 percent.
“The within-target path of inflation over the policy horizon provides the BSP with the flexibility to assess our monetary tools to enhance further our responsiveness to the evolving requirements of the economy with due consideration of external factors with potential impact on domestic monetary conditions,” Espenilla also said.
Australia’s ANZ Research, meanwhile, expects headline inflation to average 3 percent in 2017 and 3.3 percent in 2018 but economist Eugenia Victorino noted significant upside risks.
“Our forecasts have not factored in the knock- on effects of the tax reform on consumer prices. While the tax reform package is still under debate in the upper house of Congress, the current form would entail a rise in transport costs. On top of the direct change on prices of automobiles and fuel, the cut in personal income tax would raise household spending and inflation, by implication. The government estimates that headline inflation would rise by 0.9 percentage point in the first 12 months of implementation,” she said.
Coupled with a persistent rise in credit growth, Victorino said ANZ was still of the view that monetary tightening was inevitable
“Credit growth maintained its uptrend, with real estate sector still dominating the rise in commercial bank loans. However, if inflation remains anchored to the target range, the central bank may respond with tighter macro prudential measures targeting specific sectors,” she explained.
“We still expect a 25-basis point hike in the interest rate corridor by the end of 2017,” she added.
Singapore’s DBS, for its part said the current inflation trajectory had clearly put less pressure on Bangko Sentral to act on policy rates.
However, looking at how market rates have behaved so far this year, expectations are still for the central bank tightening soon enough, it said.
“While we are not overly worried at this juncture, there are rising concerns over the widening current account deficit. Consumption growth is strong at 6 percent pace while investment growth is solid in the double-digits,” it added.
“Even if the inflation trajectory doesn’t scream for higher policy rates as yet, the BSP can definitely afford to adjust rates higher in the coming months. Stay tuned,” DBS said.
Supply concerns raised
While food inflation may have slowed – particularly for oils and fats, meat, fruit, sugar, honey, vegetables, and rice, the National Economic and Development Authority stressed the need to shore up supplies.
“As the Philippines enters its lean months for rice production, it is important for the government to ensure adequate supply of rice to prevent inflationary pressures. Along this line, the planned government-to-private sector rice importation scheme is a step in the right direction. Congress should also act fast to amend domestic laws to end the quantitative restrictions on rice,” Pernia said.
He warned that despite slower rice inflation, dwindling rice stocks could exert upward pressures on food price inflation in the near term.
“The significantly lower probability of El Niño or La Niña happening this year bodes well for agricultural production and domestic commodity prices. But the government needs to continue investing in agri-infrastructure like catchment basins, advance atmospheric moisture extraction, and water-saving technologies,” he said.