Analysts expect slower price hike in June

INFLATION likely resumed easing last month following a surprise uptick in May, according to most analysts in a BusinessWorld poll late last week who cited declines in food and fuel prices.

A poll among 12 economists yielded a 2.9% estimate median for June inflation, close to the ceiling for the Bangko Sentral ng Pilipinas’ (BSP) own 2.2-3.0% range for the same month.

If realized, this would match December 2017’s pace and would be the slowest since the 2.6% clocked in August the same year.

It also compares to actual inflation of 3.2% in May and 5.2% in June last year.

The Philippine Statistics Authority (PSA) is scheduled to report official June price data on July 5.

“In terms of inflation, there were more than enough oil price rollbacks this month that may determine the level of prices and these are definitely on further downtrend,” Ruben Carlo O. Asuncion, chief economist of the UnionBank of the Philippines, Inc., said in an e-mail late last week.

Robert Dan J. Roces, assistant vice-president and economist of Security Bank’s Treasury Group, said that despite rice prices going down in the last two months, markups were still seen among fish and beef prices.

PSA data show average retail price of well-milled rice fell by 2.3%, 2.7% and 2.7% year-on-year in the first to third weeks of June, respectively, to P43.02 per kilogram (/kg) as of the third week, while average retail price of regular milled rice dropped by 4.1%, 4.4% and 4.7% annually in the first to third weeks, respectively, to P38.68/kg as of the third week.

Mr. Roces said the African Swine Fever poses as a risk to the food index as pork prices may go up faster due to lack of supply.

“In the heavily-weighted food and non-alcoholic beverages index, we see that although rice prices have consistently been going down for the last two months, fish and beef prices still register higher markups. Additional upside risks to the food index now include restrictions on pork imports from African Swine Fever high-risk countries, providing markets some shortfall in supply, this driving prices up as well. The additional ban on pork imports from Korea imposed today may well seep into July supply levels as well,” Mr. Roces said.

“In the fuel index, pump prices have slightly risen in the last two weeks as renewed tensions in the Middle East began lifting oil prices. Crude prices have also been hit by concerns that the US-China trade dispute will lead to slower economic growth,” he added.

“But core OPEC (Organization of the Petroleum Exporting Countries) may still be able to balance the market in the short term by responding to consumer demand and produce beyond its targets depending on market conditions.”

Michael L. Ricafort, head of Rizal Commercial Banking Corp.’s Economic and Industry Research Division, gave the lowest estimate along with Bank of the Philippine Island’s Vice-President and lead economist Emilio S. Neri, Jr. at 2.6%.

Mr. Ricafort said his estimate was “largely due to still relatively lower global crude oil prices, stronger peso exchange rate, and higher base/denominator effects, thereby offsetting the effects of the mild El Niño drought that led to some upticks in the prices of some local food/agricultural products.”

Supporting imports, the peso finished P51.24 against the US dollar on Friday, appreciating by 3.9% from June 2018’s P53.34 close, while the local currency’s weighted average amounted to P51.233 to the greenback, 4.1% stronger than the year-ago P53.404, according to data from the Bankers Association of the Philippines.

“On other external factors, the lingering US-China trade war, slowest economic growth in China in nearly 30 years and Brexit-related uncertainties have slowed the growth economic outlook, global trade and global inflation also partly/indirectly leading to slower inflation in the Philippines,” Mr. Ricafort added.

HSBC Global Research said that it expects slower inflation in the coming months after giving a 2.8% estimate for June.

“The pace of sequential inflation likely remained steady due to higher food and education prices, albeit a decline in pump prices,” HSBC said in its Global Economic Calendar.

“Nevertheless, we expect inflation to decline further in the months ahead, potentially dropping below three percent for the majority of 2H19. We expect full-year inflation to average three percent in 2019, arriving at the midpoint of the BSP’s 2-4% target.”

Nicholas Antonio T. Mapa, senior economist at the ING Bank Manila, said that utility prices, along with lower cost of food and fuel, would contribute to inflation’s slowdown.

“Inflation will most likely be slower than the previous print because of favorable base effects, lower domestic pump prices and the overall improvement in supply chains resulting in slower food inflation,” Mr. Mapa said.

“Utility prices will also contribute to the slowdown in price gains as we saw lower price increases for this sector with Meralco generation charge down in June 2019 from its level in 2018. Transport costs will likely be almost flat as domestic pump prices contracted from the same time in 2018,” he added.

The overall rate of Manila Electric Co. (Meralco) — the country’s biggest electricity distributor — dropped for the second straight month by P0.1948 per kilowatt hour (/kWh) to P10.0918/kWh in June from P10.2866/kWh in May.

In a separate note on Friday last week, Euben Paracuelles, executive director and senior economist for Southeast Asia at Nomura Securities Company Ltd’s Research Division, said that he expects headline inflation to fall “below the mid-point of BSP’s 2-4% target at around 2.9% y-o-y in June from 3.2% in May” and the year-ago 5.2%.

“This not only reflects a lower crude oil price average so far this month but also likely slightly lower core inflation, which is consistent with moderating GDP growth in Q1,” Mr. Paracuelles had explained.

Core inflation, which strips out volatile food and oil prices, clocked in at 3.5% in May from 3.6% a year ago, taking its year-to-date pace to 3.7%, faster than the 3.6% headline inflation in 2019’s first five months.

He added that he expects headline inflation to slow further to 2.1% next quarter on the back of falling rice retail prices, after the government liberalized importation, as well as base effects from price increases in the wake of tax hikes in January last year.

Rice accounts for about 9.59% of the theoretical basket of goods used by a typical household that is the basis for computing year-on-year overall price changes, while liquid fuel, solid fuel, gasoline and electricity contribute 0.13%, 1.22%, 1.28% and 4.8%, respectively. — Reicelene Joy N. Ignacio