First time in 7 months
Manila, Philippines — Headline inflation is expected to settle within the four to 4.8 percent range in July, with upward pressure coming from higher electricity rates, elevated prices of some food items and rising oil prices, the Bangko Sentral ng Pilipinas (BSP) said.
If realized, July inflation may breach the two to four percent target for the first time in seven months or since the 4.1 percent in November last year.
The consumer price index (CPI) eased to a four-month low of 3.7 percent in June from 3.9 percent in May. Inflation averaged 3.5 percent in the first half.
If inflation hits the upper end of the BSP’s month-ahead forecast, or at 4.8 percent, it will be the highest in eight months or since the 4.9 percent in October 2023.
“Higher electricity rates along with the increased prices for agricultural commodities like vegetables, meat and fruits along with higher domestic oil prices are the primary sources of upward price pressures for the month,” the BSP said.
On the other hand, lower rice and fruit prices along with the peso appreciation might have helped offset the upward inflationary pressures last month.
“Going forward, the BSP will continue to monitor developments affecting the outlook for inflation and growth in line with its data-dependent approach to monetary policy formulation,” the central bank said.
BSP Governor Eli Remolona Jr. earlier said inflation would likely breach the two to four percent target in July before returning to within target by the third quarter.
He also said the central bank is considering a possible rate cut of 25 basis points at its next policy review on Aug. 15 and another 25 basis points in the fourth quarter, as the tighter-for-longer rate environment could quell too much economic activity.
Meanwhile, Nicholas Mapa, chief economist at Metropolitan Bank & Trust Co. (Metrobank), said headline inflation may reach 3.8 percent in July, falling within the two to four percent target again.
Mapa said price pressures are fading at a more favorable pace at the start of the second half.
“Receding risks from the El Niño weather phenomenon plus improved supply dynamics due to government remedies should keep price pressures at bay,” he said.
In the coming months, Mapa expects inflation to slow down further, with the headline rate possibly dropping to around two percent by September.
“This significant decrease is primarily due to the government’s tariff reduction lowering rice prices, which heavily impacts the CPI basket,” he said.
Declining inflation could also help support consumer spending and prompt the BSP to start its easing cycle.
“As a result of all this, a potential resurgence in investment momentum is expected to accelerate GDP growth in the medium-term, likely pushing it beyond the six percent pace of expansion and possibly even higher,” Mapa said.