BSP expects July inflation at 5.1 to 5.8%
The BSP’s Department of Economic Research said inflation would likely hover between 5.1 and 5.8 percent in July primarily due to the increase in electricity rates in areas serviced by Manila Electric Co. (Meralco), as well as higher water rates imposed by Maynilad Water Services Inc. and Manila Water Co. Inc.
KJ Rosales
BSP expects July inflation at 5.1 to 5.8%
Lawrence Agcaoili (The Philippine Star) - August 1, 2018 - 12:00am

MANILA, Philippines — Consumer prices likely accelerated further in July as the Bangko Sentral ng Pilipinas (BSP) expects inflation to hit a fresh five-year high on the back of increased utility rates, oil prices and fares, higher excise tax on tobacco products, and more expensive rice and agricultural products.

The BSP’s Department of Economic Research said inflation would likely hover between 5.1 and 5.8 percent in July primarily due to the increase in electricity rates in areas serviced by Manila Electric Co. (Meralco), as well as higher water rates imposed by Maynilad Water Services Inc. and Manila Water Co. Inc.

“The increases in electricity rates in Meralco-serviced areas, water rate adjustments in Maynilad- and Manila Water-serviced areas, domestic gasoline and LPG prices, jeepney fares, scheduled increase of the tobacco excise tax, and prices of rice and other agricultural commodities could lead to upward price pressures during the month,” the BSP said.

However, the central bank noted there was a slight downward adjustment in domestic diesel prices for July.

“Going forward, the BSP will continue to keep a watchful eye on the risks to the inflation outlook and will take necessary action to help ensure that inflation expectations remain firmly anchored to the target,” it said.

Inflation rose to a fresh five-year high of 5.2 percent in June, bringing the six-month average to 4.3 percent and exceeding the BSP’s two to four percent target, primarily due to rising global oil prices as well as the impact of the implementation of Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law.

This prompted the BSP’s Monetary Board to deliver a combined 50 basis point increase in interest rates through back-to-back hikes last May 10 and June 20 to curb rising inflationary pressures.

In a statement delivered at the Development Budget Coordination Committee (DBCC) briefing at the House Committee on Appropriations on the 2019 proposed national budget, BSP Governor Nestor Espenilla Jr. said current inflation pressures are driven mainly by supply-side factors, related to rising global oil prices, higher excise taxes, and weather-related disruptions, factors that are generally outside the scope of monetary policy.

“However, we recognize that inflation expectation is experiencing some uptrend. There may also be some contributory demand side impulse given sustained strong economic growth. Possible second-round effects could emerge given sustained price pressures,” he said.

According to Espenilla, the monetary policy actions in the second quarter were undertaken to firmly anchor inflation expectations to the inflation target and arrest any possible risks of second-round effects.

“Nevertheless, we continue to forecast the return to within the inflation target range of two to four percent in 2019,” he said.

The BSP chief reiterated monetary authorities remain committed to its primary mandate of promoting price stability conducive to sustainable and inclusive growth.

 “The BSP stands ready to take decisive monetary policy responses to uphold this objective. The BSP also supports non-monetary reforms such as the shift to the rice tariffication system and the continued implementation of TRAIN-related mitigation measures to help address supply side inflationary pressures,” he said.

Espenilla said the BSP would be constantly on guard of emerging risks from both the external and domestic fronts amid indications that the country’s macroeconomic fundamentals would continue to be robust and the near-term prospects remain favorable.

The BSP is now more hawkish as it committed strong follow-through monetary adjustment in the next rate-setting meeting of the Monetary Board scheduled on Aug. 9.

BANGKO SENTRAL NG PILIPINAS INFLATION
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