Inflation seen picking up in June

MANILA, Philippines - DBS Bank Ltd. of Singapore sees inflation increasing to 1.8 percent last month from 1.6 percent in May due to higher food prices.

“Expect inflation to have ticked up more markedly in June as effects from low oil price dissipate. Food prices have also ticked up quite a bit, similar to what’s seen in the region, partly due to the weather,” DBS economist Gundy Cahyadi said. 

The inflation forecast of DBS for June is slightly below the two to four percent target set by the Bangko Sentral ng Pilipinas (BSP) and would give monetary authorities enough room to keep interest rates steady. 

Robust demand and the benign inflation environment have allowed the BSP’s Monetary Board to keep interest rates steady for 14 straight policy rate-setting meetings since October 2014.

Cahyadi said the BSP would keep policy rates untouched this year.

“We don’t think the BSP will do anything for now, but we still have them raising rates in early 2017,” he added. 

Earlier, BSP Governor Amando Tetangco Jr. said inflation for the month of June could settle between 1.5 and 2.4 percent due to higher food prices and tuition. 

“Upside inflation pressures could come from the increase in tuition fees as well as in rice and vegetable prices which could be partly offset by the decline in electricity rates and domestic oil prices for the month,” Tetangco said. 

He pointed out the BSP would continue to monitor evolving price trends to ensure price stability conducive to a balanced and sustainable economic growth. 

During the last rate setting meeting of the BSP, monetary authorities slashed this year’s inflation forecast to two percent instead of 2.1 percent due to the lower than expected minimum wage adjustment of P10 implemented last month instead of the projected P27 increase in July. 

Likewise, the BSP is looking at a modest increase of P18 in June 2017 and June 2018 instead of the projected adjustment of P29. 

On the other hand, the BSP decided to keep its inflation forecast at 3.1 percent next year before easing to 2.6 percent in 2018.

BSP Deputy Governor Diwa Guinigundo earlier said the Philippines has enough buffers as well as strong macroeconomic fundamentals to weather the volatile global financial markets amid the interest rate hike in the US and “Brexit.” 

“On balance, therefore, the sum of recent new information, particularly on the emerging outlook for inflation and demand conditions, continues to support keeping monetary policy unchanged,” Espenilla said. 

He added the continued uncertainty relating to monetary policy prospects in major advanced economies require a steady hand on policy settings in order to retain flexibility in the period ahead.