Inflation likely at 1.5-2.4% in July – BSP

Lawrence Agcaoili (The Philippine Star) - July 27, 2016 - 12:00am

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) expects the July inflation to stand between 1.5 and 2.4 percent this month on the back of more expensive electricity rates as well as higher rice prices.

BSP Governor Amando Tetangco Jr. said upside risks to inflation outweigh downside risks in July particularly due to higher rates imposed by electricity distributor Manila Electric Co. (Meralco).

“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, 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, 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.

Monetary authorities believe the country’s monetary policy stance remain appropriate at the moment.

“Going forward, the BSP will remain watchful of evolving price trends to ensure price stability conducive to a balanced and sustainable economic growth,” Tetangco said in a text message to reporters.

The BSP chief pointed out authorities would continue to monitor external factors such as the normalization of interest rates in the US as well as the decision of the United Kingdom to leave the European Union (Brexit).

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 of private sector economists also showed economists maintained their inflation forecast at 2.7 percent for next year.

“Analysts attributed their inflation expectations to low global oil prices and slower global economic growth. These are likely to outweigh the upside risks brought by the El Niño phenomenon, the rebound in oil prices, power rate adjustments, expected occurrence of La Niña in the latter part of 2016, and holiday “related spending in Q4 2016,” the central bank said.

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