July inflation seen dropping to 2.8%

The July inflation rate is expected to fall within the range of 2.8 percent to three percent as food prices remained stable, giving the Bangko Sentral ng Pilipinas (BSP) enough room to keep its policy rates steady for four straight months.

Economic Planning Secretary Dante Canlas told reporters yesterday that the July inflation is likely to go down to as low as 2.8 percent and at worst, remain even at 3 percent.

According to Canlas, food prices have been the primary stabilizing factor although the consumer price index also remained steady with the reduction of fuel costs following the reduction of the power purchase agreement (PPA) fees attached to electric bills.

Canlas said that prices have been moving with reliable steadiness compared to last year, increasing at an even rate with little volatility.

The inflation rate is calculated based on the consumer price index (CPI), a basket of basic goods that includes food, shelter, clothing, fuel and utilities. It is an indicator of how fast the prices of these goods are either increasing or decreasing.

At 2.8 percent, it means that prices have moved up at 2.8 percent compared to prices over the same period last year.

Encouraged by the benign inflation, the BSP’s policy-making body, the Monetary Board, yesterday decided to keep policy rates unchanged at seven percent for the overnight borrowing rate and 9.25 percent for the overnight lending rate.

The BSP said it expects the inflation rate to be benign due to positive supply-side factors such as adequate food supply, moderate oil prices and the broad stability in exchange rate.

According to the Monetary Board, however, while the near-term risks to inflation have diminished, "inflationary headwinds‰ could still emerge due to uncertainties spawned by the El Nino weather phenomenon."

The MB said the agriculture sector has been preparing for a prolonged dry season. The board also said the stimulus for external sector could not be as strong as earlier anticipated.

The MB said the key factor is the timing and the pace of economic recovery in "Based on these considerations, the Monetary Board is of the view that monetary policy should continue to focus on ensuring conditions to strengthen domestic demand," the MB said.