Inflation gains pace in June as economy reopens
MANILA, Philippines (UPDATE 1 11:24 a.m., July 7)— Inflation accelerated for the first time this year in June as the economy began to come out of strict lockdowns, the Philippine Statistics Authority (PSA) reported on Tuesday.
Consumer prices rose 2.5% year-on-year in June, up from 2.1% in the previous month, but still falling within the central bank's 1.9-2.7% projection for June. Higher transport costs as public transport restarted was a key driver of prices last month.
Last month’s inflation marked the first time that prices of basic goods and services gained some pace this year. From January to June, inflation averaged 2.5%, well within the 2-4% target of the Bangko Sentral ng Pilipinas (BSP) which remained worried consumers now allowed out of their homes are resisting spending.
“The latest inflation outturn is consistent with the BSP’s prevailing assessment that inflation pressures remain limited due largely to the adverse impact of the COVID-19 pandemic on the domestic and global economic conditions,” BSP Governor Benjamin Diokno said in a statement on Tuesday.
Prices becoming less of an issue is not entirely good news. Ahead of the inflation report, Diokno admitted on Monday consumers continued “holding back on their consumption,” which in turn discourages business to produce more, slowing economic activity. Nicholas Antonio Mapa, senior economist at ING Bank in Manila, agreed.
“With unemployment skyrocketing to 17.7% in (second quarter), demand for commodities remains weak which should keep a lid on price pressures in the coming months,” Mapa said in an online exchange.
BSP likely to keep rates steady
On the PSA report on Tuesday, price gains mainly emanated from the transport index where inflation accelerated 2.3% year-on-year, reversing a slump in the past three months when public transport was shut. Food prices remained largely stable rising 2.8%, slowing down from May’s 3.1% year-on-year.
By region, PSA report showed inflation in Metro Manila in June picked up pace to 2% from May’s 1.4%. Outside the National Capital Region, prices rose faster at 2.7%, up from 2.2% in May.
Sonny Africa, executive director of IBON Foundation, a think tank, said faster inflation when most people are out of work is bad news. “Rising inflation amid consumption repressed by lockdowns is worrying and may point to supply and production bottlenecks,” Africa said in a text message.
“Rising prices are also particularly troublesome for millions of poor families suffering interrupted incomes and stingy emergency relief,” he added.
Indeed, the poor felt faster inflation than the rest in June. A separate PSA report showed inflation for the poorest 30% of households picked up to 3% year-on-year from May’s 2.9%, but faster than over-all inflation of 2.5%. Higher tricycle fares were to blame, PSA said.
But overall, Acting Socioeconomic Planning Secretary Karl Kendrick Chua said a “moderate increase in inflation” should help consumer demand recover in the long run. “At the same time, we need to strictly monitor suggested retail prices on basic commodities to protect consumers from overpricing and against unscrupulous sellers,” Chua said in a statement.
ING Bank’s Mapa said faster inflation is likely to prevent BSP from delivering more monetary support to the economy fighting COVID-19. The central bank has cut policy rates by 175 basis points to new record-lows, and bank reserves by 200 bps to increase liquidity in the system.
“With the BSP’s real (inflation adjusted) policy rate now negative (-0.25%), we reiterate our expectation that the central bank will refrain from cutting policy rates in the near term and look to additional liquidity enhancement measures should the economy need more stimulus,” he said.
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