July inflation quickens to 4.4% y/y

The Philippine Statistics Authority (PSA) [link] reported Consumer Price Index (CPI) data for July and revealed that inflation quickened to 4.4%. The CPI takes the price of a broad range of basic goods and services and compares those prices against how much those goods and services cost in 2018. If we assume this “basket” of goods and services cost P100 in 2018, the PSA’s data for July showed that those same goods and services now cost P126.5. A year ago, in July 2023, that basket cost P125.6. That year-on-year increase in price of 4.4% is what we call inflation. The BSP had expected July’s inflation to be between 4.0% and 4.8%, while the economist consensus was closer to the BSP’s low range at 4.1%. BSP Governor Eli Remolona said that an August rate cut was a “little bit less likely” after this “slightly worse than expected” result. He added that a rate cut may still be on the table if the PSA’s data on the country’s Q2 GDP was “unexpectedly weak”.

MB bottom-line: The increases in the price of food dominate the year-on-year price variance table. Rice is up 20.9% y/y, cereals are up 20.7% y/y, corn is up 17.5% y/y, fruits and nuts are up 8.4%, vegetables are up 6.1%, and ready-made food is up 6.0%. But this is the reality of life that people have been living with for a while. What actually caused the uptick in July inflation was an increase in electricity and fuel prices. Despite all that, the BSP is still satisfied that the result falls within its expected range, and is still looking for this July result to be the peak with “a general downtrend beginning in August.” I think part of the problem here is that it’s the poor who are disproportionately harmed by inflation, and in particular by the drivers of inflation (basic food prices), and yet none of these increases are due to spikes in demand that can be adequately quelled by increasing the cost of capital. Weak Q2 GDP or not, with the Peso trading some days with a 57-handle, I’m finding it harder and harder to follow the BSP’s reasoning for keeping both feet slammed on the brakes. 

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