POWER, fuel and food price hikes likely drove inflation to the upper end of the 2.0- to 4.0-percent target or even higher in July, the Bangko Sentral ng Pilipinas (BSP) said on Wednesday.
Consumer price growth, which has stayed within target since December last year, was estimated to have hit 4.0- to 4.8-percent from 3.7 percent in June.
The Philippine Statistics Authority (PSA) is scheduled to release inflation data for the month on August 6.
“Higher electricity rates along with the increased prices for agricultural commodities like vegetables, meat and fruits, along with higher domestic oil prices are the primary sources of upward price pressures for the month,” the BSP said.
“These factors are expected to be offset in part by lower rice and fruit prices along with the peso appreciation,” it added.
The BSP said it would “continue to monitor developments affecting the outlook for inflation and growth in line with its data-dependent approach to monetary policy formulation.”
A significant breach of the 2.0- to 4.0-percent target could prompt the BSP to rethink a likely rate cut on August 15, which is when its policymaking Monetary Board next meets.
It will also have the benefit of latest economic growth data as the PSA will be reporting preliminary second-quarter results on August 8, along with the outcome of the US Federal Reserve’s (Fed) July 30-31 policy meeting.
The BSP’s benchmark rate currently stands at 6.5 percent, the highest since 2007, following 450 basis points of increases beginning in May 2022 when inflation started surging in the wake of Russia’s invasion of Ukraine.
Central bank officials have previously said that inflation could breach the target through the third quarter of 2024 due to higher food and fuel prices, but still average within 2.0-4.0 percent for the entire year.
During its last policy meeting on June 27, the Monetary Board said that the balance of risks to inflation had moved to the downside for this year and the next.
The risk-adjusted forecasts for 2024 and 2025 were subsequently trimmed to 3.1 percent for both years from 3.8 percent and from 3.7 percent, respectively.
BSP Governor Eli Remolona Jr. has hinted of two rate cuts totaling 50 basis points this year beginning in the third quarter. The August meeting is the only one scheduled for the period.
The move to begin easing in August, which was flagged as early as May, has led to the peso weakening against the dollar as the Fed is expected to only start cutting rates in September.
Remolona, however, has said that the central bank had enough resources to defend the currency from undue volatility. Last month, he said that waiting too long could lead to a loss of economic output.
Economic growth has so far been below the 6.0- to 7.0-percent target for 2024, having hit 5.7 percent in the first quarter.
Metrobank chief economist Nicholas Antonio Mapa, meanwhile, said inflation was still expected to decline for the rest of the year, potentially dropping to 2.0 percent by September, given the government’s move to slash tariffs on imported rice.
“The combination of lower rice prices and favorable base effects could push inflation toward the lower end of the central bank’s target range,” he said.
“This trend suggests a potential shift toward a more stable price environment, which may influence future economic policies.”
Mapa expects the Monetary Board to cut by 25 basis points during each of its remaining meetings, with three more to follow in 2025 “as long as the inflation outlook points to inflation staying within target this year and the next.”
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