Inflation likely peaked in July — FMIC

MANILA, Philippines — Inflation likely has reached its peak in July and will continue easing toward the end of the year, according to First Metro Investment Corp. (FMIC).

In its latest Market Call report put together with the University of Asia and the Pacific (UA&P), the investment banking arm of the Metrobank Group said the uptick in consumer prices to 2.7 percent in July as supply chains normalize will continue to taper off as seen in the deceleration of the headline rate to 2.4 percent in August.

Crude oil prices have also remained below the $40 per barrel level, putting less pressure on the prices of goods.

“We think inflation has peaked at 2.7 percent in July given that food supplies and overall production head towards normalization,” said the report.

“Headline inflation will likely end the full year at 2.4 percent from our earlier forecast of 2.5 percent.”

Inflation so far is not seen as an impediment to monetary policy easing as diminished consumption and weakened economic activity is expected to keep the headline rate in the bottom half of the central bank’s target range of two up to four percent for the year.

Despite a still subdued outlook for the third quarter, FMIC and UA&P has a more positive outlook for the fourth quarter as the economy emerges from tight mobility restrictions and more jobs are restored.

There are also prospects of further relaxation of community quarantine restriction, greater availability of public transportation and dine-in options in restaurants subject to tough health protocols.

“With a more determined wider opening of the economy starting September, the outlook has brightened a bit for Q4,” said the report.

In line with recent developments, FMIC and UA&P now see the economy suffering a decline of between 6.5 percent up to 8.5 percent, a less severe forecast compared with the outlook of a contraction of between eight to nine percent made in August.

“We should see even better improvements in the real sector as more people get back to work amidst quarantine constraints have become more focused on local hot spots,” said the report.