Inflation breached upper target in July — economists

MANILA, Philippines — Headline inflation likely accelerated to above four percent in July, breaching the government’s two to four percent target for 2024 for the first time in seven months, due to higher prices of some key food items and elevated electricity costs, a poll of leading economists showed.

John Paolo Rivera, president and chief economist at Oikonomia Advisory & Research Inc., said inflation may have picked up to four percent in July after slowing to a four-month low of 3.7 percent in June.

The last time headline inflation was above four percent was in November 2023 at 4.1 percent.

Rivera attributed the upward inflationary pressure last month to supply disruptions from recent weather calamities, leading to higher prices of agricultural products.

Aris Dacanay, economist for ASEAN at HSBC, expects inflation to rise to 4.2 percent in July, well within the four to 4.8 percent forecast range of the Bangko Sentral ng Pilipinas (BSP) for last month.

“Typhoon Carina likely caused some uptick in food prices, with the floods taking a toll not just on the supply of food, but also in logistical costs,” he said.

He added that retail rice prices have not been lowered just yet despite the cut in tariff rates. This is because retailers are still unloading their inventories of rice that were previously bought at higher prices.

“Headline inflation may have also jumped month-on-month due to the steep increase in Metro Manila’s electricity rates after being deliberately kept low in June,” Dacanay added.

Bank of the Philippine Islands lead economist Jun Neri also believes inflation likely rose to 4.3 percent mostly due to the surprise surge in vegetable prices and higher electricity costs.

Security Bank chief economist Robert Dan Roces projects inflation at 4.2 percent, but July’s print may be a temporary overshoot.

“Despite the recent typhoon’s possible, albeit transitory, impact on food prices, inflation is expected to return to target in August due to favorable base effects,” Roces said.

“For July, higher electricity rates, elevated agricultural commodity prices and increased domestic oil costs drove inflation, and this was partially offset by lower rice and fruit prices as well as the peso’s appreciation,” he said.

Manila Electric Co. (Meralco) increased rates by P2.1496 per kilowatt-hour in July, bringing the total rate for an average household to P11.6012 per kWh.

Philippine National Bank economist Alvin Arogo said inflation may have picked up to 4.4 percent in July due to higher Meralco rates and the adverse impact of Tropical Depression Butchoy and Typhoon Carina on food prices.

“Although supply side-driven, a breach of the two to four percent target inflation band of the BSP could complicate the timing of the forthcoming easing cycle,” Arogo said.

UnionBank chief economist Ruben Carlo Asuncion said inflation may have surged to 4.6 percent in July as electricity charges may have risen by 3.7 percent year-on-year, compared to June’s decline of 20.6 percent from a year ago.

He also said the impact of Carina on headline inflation may have yet to be reflected in the July data and is expected to be seen in early August.

However, despite the uptick in July inflation, Asuncion said the Monetary Board would largely focus on long-term prospects of prices through core inflation when it decides on its next policy move on Aug. 15.

Further, second-quarter gross domestic product (GDP) data will be a major consideration when the Monetary Board meets to review the country’s policy settings next week.

“A weaker-than-expected second-quarter GDP print will more likely mean that the MB will start easing rather than remaining unchanged as the MB looks to longer-term economic growth prospects amid high borrowing costs,” Asuncion said.

Roces believes GDP growth will slightly accelerate to 5.9 percent in the second quarter from 5.7 percent in the first quarter.

“We anticipate a relatively healthy domestic demand to fuel economic acceleration in the second quarter,” he said.

He noted that the Philippines’ purchasing managers’ index averaged 51.8 in the second quarter, higher than the 50.9 average in the first quarter.

Second-quarter GDP data will also be supported by high employment, increased government spending and stable inflation, Roces said.

The Philippine Statistics Authority is set to release its July inflation data tomorrow and its second-quarter GDP data on Aug. 8.