A CONTINUED decline in rice prices and base effects could have driven inflation further down in July, analysts said.
The median forecast in a Manila Times poll was 1.1 percent, lower than June’s 1.4-percent result and within the Bangko Sentral ng Pilipinas (BSP) 0.5- to 1.3-percent forecast.
If realized, inflation will have fallen below the government’s 2.0- to 4.0-percent target for a fifth straight month and could prompt monetary authorities to again lower interest rates during their Aug. 28 policy meeting.
The Philippine Statistics Authority (PSA) will release July inflation data this Tuesday, Aug. 5.
Last Thursday, the Bangko Sentral ng Pilipinas (BSP) “higher meat and vegetable prices partly due to unfavorable weather conditions, increased electricity rates, elevated domestic fuel costs, and the depreciation of the peso” would have driven upside price pressures in July.
These, however, would have been partially offset by the continued decline in rice prices.
‘Lowest since Oct. 2019?’
Pantheon Macroeconomics economist Miguel Chanco said the “continued food disinflation, which we think will drop to outright deflation” will help bring inflation down to 0.7 percent.
Chinabank Research, meanwhile, said a favorable base effect will likely pull inflation to 0.9 percent, coupled with softer prices of rice, fruits and gasoline.
“With inflation possibly falling to its lowest since October 2019 — and average inflation expected to remain below target this year — we think the BSP has room to continue easing monetary policy with a 25 bp-rate cut at its August meeting,” Chinabank said.
“This move would help support the local economy as it faces downside risks from elevated global uncertainty.”
HSBC Global Research economist Aris Dacanay, who has a 1.0-percent forecast, said that “base effects likely played a huge role but retail prices, too, remained manageable month-on-month.”
“Upward price pressures were seen, however, in electricity rates and diesel but we don’t think these were enough to offset the deflationary pressures from rice and gas,” he added.
“Moving forward, inflation will likely begin its steady climb as the favorable base effects from lower rice prices fade.”
Bank of the Philippine Islands senior economist Emilio Neri and Rizal Commercial Banking Corp. chief economist Michael Ricafort said inflation could have hit 1.1 percent last month.
“The uptick was mainly driven by higher prices of oil, electricity rates, and select food items such as vegetables, fish, and meat. However, this will likely be partially offset by the continued decline in rice prices,” Neri said.
“Additionally, the high base effect from July 2024, when inflation peaked at 4.4 percent, is expected to help keep the year-on-year figure subdued despite the monthly increase,” he added.
Sun Life Investment Management and Trust Corp. economist Patrick Ella, meanwhile, said inflation could be lower at 1.2 percent due to “soft food prices and muted non-food prices, especially in energy despite some pump price adjustments.”
Philippine National Bank economist Alvin Arogo said inflation could have hit 1.3 percent due to “favorable base effect outweighed upward price pressures from typhoon damage.”
‘Lagged effects’
Having the highest forecast of 1.5 percent, Emmanuel Lopez of the University of Santo Tomas Graduate School and Union Bank of the Philippines chief economist Ruben Carlo Asuncion said inflation could have edged up due to the delayed effects of food and transport costs.
“The uptick is driven by lagged effects of food and transport costs, weather-related supply disruptions from early monsoon and typhoon activity, and seasonal demand linked to school openings and midyear bonuses,” Asuncion said.
“Additionally, exchange rate movements, with the peso strengthening amid broad USD (US dollar) weakness, influenced import prices,” he added.
Meanwhile, Lopez said that “inclement weather brought up the prices of food and other agri products.”
“Added to this is the increased cost of utilities, primarily electricity and transportation.”
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