Poll: Inflation likely eased slightly in August

Economists’ median forecast at 6.1 percent

MANILA, Philippines — Inflation may have stayed above six percent in August as higher food and fuel prices, weather-related supply disruptions and the peso’s weakness kept price pressures elevated, economists said.

A poll of 10 economists conducted by The STAR yielded a median forecast of 6.1 percent for August inflation, slightly lower than the 6.2 percent print in July, but still well above the Bangko Sentral ng Pilipinas (BSP)’s two to four percent target range.

Inflation, or the rate of increase in prices of goods and services commonly bought by households, has remained elevated this year due to supply shocks from food, oil and weather-related disruptions.

Forecasts ranged from 5.9 percent to 6.3 percent. If realized, August would mark the sixth straight month that inflation settled above the BSP’s target range.

The Philippine Statistics Authority is scheduled to release the August inflation data on Sept. 4.

Ateneo Center for Economic Research and Development senior research fellow Ser Percival Peña-Reyes had the highest forecast at 6.3 percent, citing personal transport, electricity and rice as the main drivers.

China Bank chief economist Domini Velasquez expects headline inflation to hold steady at 6.2 percent in August, unchanged from July.

“Price pressures were likely driven by higher prices of key food items, including rice, corn, fish, vegetables, fruits, eggs and cooking oil, with more than two weeks of steady rainfall disrupting agricultural supply and pushing up prices of some food items,” Velasquez said.

She said higher fuel and cooking gas prices amid persistent Middle East tensions also added to price pressures, partly offset by lower electricity rates in areas served by Manila Electric Co. and softer meat prices.

Core inflation, which excludes volatile food and energy items, likely eased to four percent from 4.2 percent in July, according to Velasquez.

“Looking ahead, upside risks remain significant, particularly from elevated oil prices, a prolonged El Niño episode that could disrupt agricultural output and the potential pass-through of higher minimum wages to consumer prices,” she said.

However, Velasquez said China Bank believes the BSP has delivered its final rate hike, as much of the remaining inflation pressure is supply-driven.

“Further monetary tightening would have limited effect in bringing inflation back to the BSP’s two to four percent target band this year,” she said.

PNB economist Alvin Arogo, UnionBank chief economist Ruben Carlo Asuncion, BPI lead economist Emilio Neri Jr., RCBC chief economist Michael Ricafort and Reyes Tacandong & Co. senior adviser Jonathan Ravelas all expect August inflation at 6.1 percent.

Arogo said inflation likely inched down from July “mainly due to base effect,” but noted that consumer price increases remain elevated due to high oil prices and the impact of recent weather disturbances on food commodities.

Asuncion said rice remained the main source of price pressures, while monsoon-related supply disruptions, higher oil prices and peso depreciation also added to inflation during the month.

“Looking ahead, food supply conditions, energy prices and exchange rate movements remain the key risks to the inflation outlook,” Asuncion said. He expects full-year inflation to average 5.3 percent.

Neri said selected food items such as vegetables and fish, together with pump prices, likely kept inflation near six percent.

“This should explain why BSP had to hike on Aug. 27 even if growth remains a serious concern. Inflation will likely remain a challenge for the rest of the year and BSP may have to keep its tightening bias,” Neri said.

The BSP raised its benchmark rate by 25 basis points on Aug. 27 to five percent, its third rate hike this year, as it sought to keep inflation expectations anchored despite softer economic growth.

Neri said improving governance is key to the country’s growth recovery, adding that the burden should not fall solely on monetary policy.

“All sorts of serious negative side effects will emerge if BSP tries to compensate for inadequate delivery of public sector services and reforms,” he said.

Ricafort said inflation likely remained elevated due to rains and flooding that damaged agriculture, higher local fuel pump prices as a new US-Iran deal remained elusive and the peso’s depreciation to record lows.

The peso hit a new record low of 62.265 to $1 on Friday, which Ricafort said could raise import costs and overall inflation.

Ravelas said the expected moderation in August inflation would be a welcome development as it suggests earlier monetary tightening and improving supply conditions are “gradually gaining traction.”

“The encouraging news is that inflation appears to be moving in the right direction, providing some relief to consumers and businesses,” he said.

However, Ravelas said inflation at 6.1 percent remains far above the BSP’s target, which means price pressures are still elevated.

“The key challenge is to ensure that the current downtrend becomes sustainable so that purchasing power recovers without reigniting inflationary pressures,” he said.

Metrobank chief economist Nicholas Mapa penciled in a six-percent forecast for August inflation.

Security Bank chief economist Angelo Taningco and HSBC Global Investment Research ASEAN economist Aris Dacanay had the lowest forecasts at 5.9 percent.

Taningco said August inflation was partly driven by higher prices of food items such as rice, fish, fruits and vegetables due to inclement weather, heavy rainfall and flooding, as well as high transport inflation due to elevated oil prices.

These were partly offset by lower meat prices and electricity rates, he said.