August inflation seen to decline below 4 percent

From 9-month high in July

MANILA, Philippines — Economists see slower inflation in August, possibly below the four percent target of the central bank, amid stable food prices.

ING regional head of research and chief economist for Asia-Pacific Robert Carnell said inflation likely dropped to 3.3 percent from the nine-month high of 4.4 percent in July.

“We calculate that overall prices remained flat from last month, with non-rice food prices a slight drag offsetting some increases elsewhere. We don’t expect a repeat of the housing-related increase last month,” he said.

Jun Neri, lead economist at Ayala-led Bank of the Philippine Islands, said inflation likely fell to 3.6 percent in August as key food items declined month on month. But higher transport and energy prices pose upside risks.

Sarah Tan, an economist from Moody’s Analytics, likewise sees inflation settling at 3.6 percent in August amid lower tariff rates for rice, which could have downward pressure on rice prices.

“The impact from Typhoon Carina that struck in July is expected to show up in August’s print in terms of higher prices for agricultural produce like vegetables,” she said.

She also noted that electricity rates accelerated in August as Manila Electric Co. raised rates by P0.0327 to P11.6339 per kilowatt-hour for a typical household, up from the previous month’s P11.6012 per kWh.

Moody’s Analytics expects inflation to stay within the two to four percent target of the Bangko Sentral ng Pilipinas (BSP) for the rest of the year.

However, rate hikes in electricity could add upward pressure on prices. There is also uncertainty over the strength of the peso when the US Federal Reserve begins its monetary policy easing cycle as any currency weakness could prevent inflation from slowing down.

Security Bank chief economist Robert Dan Roces sees inflation settling at 3.7 percent, mainly driven by weak rice imports and heavy rainfall disrupting local food production.

“However, the overall inflationary pressure may be partially offset by a stronger Philippine peso and lower oil prices in August, which could mitigate imported inflation and reduce transportation costs,” Roces said.

UnionBank chief economist Ruben Carlo Asuncion said inflation may have eased to four percent due to declines in rice inflation and a 10-percent drop in petroleum prices, which could have offset the likely electricity rate hike of 6.7 percent last month.

For the year, Asuncion said UnionBank raised its inflation forecast to 3.7 percent in 2024 from 3.6 percent previously. On the other hand, it lowered its projection to 3.5 percent in 2025 from 3.7 percent.

“While headline inflation attempts to regain its disinflation bearings, we projected core inflation bottoming out at 2.8 percent year on year in October before inching higher to end the year at 3.2 percent,” he said.

Inflation for housing rental and utilities is also projected to peak in August. Inflation for education will likely slow down to 3.7 percent in December as well.

But upside risks remain amid potential escalations in geopolitical tensions in the region and in the Middle East, Asuncion added.

Miguel Chanco, chief economist for emerging Asia at Pantheon Macroeconomics, said he expects inflation to ease to 4.1 percent in August amid lower pump prices last month.

“Inflation should fall more dramatically from September, as favorable food-price base effects kick in, stemming from the surge in rice prices around this time last year,” he said.

Chanco said that barring any new external and domestic shocks, inflation will likely remain within the BSP’s target in the coming months.

“As things stand, the primary risk from our perspective is to the downside; rice prices have yet to react materially to the recent cut in tariffs while, more fundamentally, underlying inflation should remain under pressure from the economy’s slowdown,” he said.