Inflation likely breaks past 2% in July – DBS

Higher food prices, power rate hike

MANILA, Philippines – DBS Bank Ltd of Singapore sees inflation breaching the lower end of the full-year two to four percent target of the Bangko Sentral ng Pilipinas (BSP) due to higher food prices.

DBS economist Gundy Cahyadi said inflation likely kicked up to 2.1 percent in July from a 14-month high of 1.9 percent last June amid the continued rise in food prices. 

“Inflation is set to continue ticking higher towards the year-end, partly due to the low base effects as well as pressure from food prices,” he said. 

However, he pointed out the consumer price index (CPI) is likely to average below the full-year target of the central bank. 

“Still, average CPI for the year is likely to be manageable, just below two percent. The BSP is unlikely to react too much to this data alone,” Cahyadi added. 

BSP Governor Amando Tetangco Jr. earlier said  inflation  would range between 1.5 and 2.4 percent this month as upside risks to inflation outweigh downside risks particularly due to higher rates imposed by electricity distributor Manila Electric Co. 

“Upside inflation pressures from the upward adjustment in power rates in Meralco-serviced areas and higher rice prices along with the weaker peso could be partly offset by lower water rates, reduction in domestic oil prices, and decline in vegetable prices during the month,” he said. 

Inflation kicked up to a 14 month high of 1.9 percent in June from 1.6 percent in May on the back of higher food prices, tuition hikes, and rising electricity rates. This was the highest since averaging 2.2 percent in April last year. 

This brought to 1.3 percent the average inflation in the first half of the year or way below the inflation target of two to four percent set by the BSP for 2016 to 2018. 

During the last rate-setting meeting of the BSP’s Monetary Board last June 23, authorities lowered the inflation forecast to two percent instead of 2.1 percent this year but retained the 3.1 percent projection for 2017 and 2.6 percent for 2018. 

The benign inflation environment as well as robust domestic demand allowed monetary authorities to keep interest rates steady for 14 consecutive rate-setting meetings since October 2014. 

A survey conducted by the BSP from June 8 to 30 showed economists of private banks slashed anew their inflation forecasts to 1.8 percent instead of 1.9 percent this year amid soft oil prices, cheaper utility rates, and slower global economic growth. 

Results of the survey also showed economists maintained their inflation forecast at 2.7 percent for next year.