Inflation steadies at 1.9% in July

MANILA, Philippines - Consumer prices remained stable with inflation falling below two percent in July due to a productive economy, low oil prices and adequate domestic liquidity.

Bangko Sentral ng Pilipinas Governor Amando Tetangco Jr. said inflation was steady at 1.9 percent in July, the same rate posted in June, and was within the central bank’s forecast range of 1.5 to 2.4 percent.

 “This supports our view that monthly inflation will creep to within target range, with full year average just at or slightly below the lower bound for 2016,” Tetangco said.

The BSP has set an inflation target of two to four percent between 2016 and 2018. Inflation averaged 1.4 percent from January to July.

“The manageable inflation trend in the first seven months of 2016 is expected to continue for the rest of the year considering the expanding productive capacity of the domestic economy, persistently low oil prices, solid private household consumption and investment, buoyant business and consumer sentiment, and adequate credit and domestic liquidity,” Socioeconomic Planning Secretary  and NEDA director general Ernesto Pernia said.

NEDA noted that headline inflation for January to July 2016 averaged at 1.4 percent, still below the low end of the government’s inflation target of two to four percent for the year.

 “But we continue to be mindful of external developments particularly geopolitical risks that could trigger volatility in commodity prices and portfolio rebalancing. Closer to home we will monitor developments with changes in weather patterns that could affect domestic supply chains,” Tetangco said.

Inflation in the National Capital Region (NCR) eased to one percent in July, while the consumer price index in areas outside NCR was steady at 2.1 percent.

Data released by the Philippine Statistics Authority (PSA) showed annual increments were higher in the indices of alcoholic beverages and tobacco at 5.8 percent; furnishing, household equipment and routine maintenance of the house, two percent; and recreation and culture, 1.8 percent.

On the contrary, slower annual gains were observed in the indices of food and non-alcoholic beverages at 2.7 percent; health, 2.4 percent; communication, 0.1 percent; and education, 1.8 percent.

The rest of the commodity groups either had annual declines or retained their last month’s rates.

The annual growth of the country’s food alone index improved to 2.8 percent in July from three percent in June. Annual decrease was still noted in the index of food products not elsewhere classified at -2.6 percent.

In addition, the double-digit annual increment posted in the vegetable index was slower at 12.8 percent. Lower annual mark-ups were also noticed in the indices of meat and sugar, jam, honey, chocolate and confectionary at 2.2 percent and 3.3 percent, respectively.

Except for the index of rice with a zero annual growth, the rest of the food groups either had higher annual mark-ups or retained their previous month’s rate.

Robust domestic demand and the benign inflation environment has allowed the BSP to keep interest rates unchanged for 14 straight rate setting meetings since October 2014.

Gundy Cahyadi, economist at DBS Bank Ltd of Singapore, said the BSP is likely to keep interest rates unchanged in the next rate setting meeting scheduled on Aug. 11.

 “We expect no changes to the policy rates from the BSP. Growth momentum remains robust, and if anything, there is probably a case to be made that BSP needs to tighten its policy stance,” he added.

DBS said the country’s gross domestic product (GDP) growth likely accelerated to seven percent in the second quarter putting upside risks on the bank’s full-year target of 6.3 percent.

Meanwhile, Pernia said government needs to prepare for the possible occurrence of La Niña by ensuring the completion of flood control projects, and improving agriculture logistics.