An uptick in food prices was felt in June, as the nationwide price freeze on all basic necessities ended on May 15. — REUTERS

By Luz Wendy T. Noble, Reporter

INFLATION may have slightly picked up in June with upward pressure mainly from rising prices of oil and rice, according to analysts.

A BusinessWorld poll of 16 economists last week yielded a median estimate of 2.2% for headline inflation in June, still slower than the 2.7% a year ago but a tad faster than the 2.1% in May.

If realized, this would be nearer the lower end of the 1.9%-2.7% estimate range by the Bangko Sentral ng Pilipinas (BSP) and well within the 2-4% target inflation this year.

So far, the average increase in the Consumer Price Index from January to May stood at 2.5%. BSP’s latest average inflation outlook for this year is at 2.3% and 2.6% for 2021.

The Philippine Statistics Authority will report the June inflation data on July 7 (Tuesday).

“Higher gasoline, diesel, and kerosene prices were observed together with the food basket as more economic activities resume,” Security Bank Corp. Chief Economist Robert Dan J. Roces said.

Recent data showed global oil prices are gradually recovering from their lows in April, supported by the extension of record supply cuts by major oil producers to July from the initially planned May-June period.

Also, the imposition of the additional 10% tariff on oil imports drove pump prices higher last month. The imposition of the additional tariff, which aimed to generate funds for the government’s pandemic response, ended on June 25 with the lapse of Republic Act No. 11469 or the Bayanihan to Heal as One Act.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the gradual easing of restriction measures may have resulted in an uptick in prices due to higher demand.

“Inflation could slightly pick up in June as economies further reopen from lockdowns thereby leading to some gradual pickup in business and economic activities that result in some pickup in demand and spending activities, which fundamentally result in some uptick in the prices of some goods and services,” he said.

On the other hand, downside risks to inflation include lower liquefied petroleum gas (LPG) prices and electricity rates but “may not be enough to offset the uptick in oil and basic commodity prices,” UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said.

Manila Electric Co. (Meralco) earlier said overall rates for June declined by P0.0216 per kilowatt-hour (kWh) to P8.7252/kWh from the P8.7468/kWh logged in the prior month. This means that households with electricity consumption of 200 kWh, 300 kWh, 400 kWh, and 500 kWh had their bills reduced by P4, P6, P9, and P11, respectively.

Meanwhile, Sun Life Financial Economist Patrick M. Ella said another offsetting factor would be the postponement of classes as tuition fees form part of the education sub-index.

“[T]uition fee impact is not significant this year (June typically sees a bump in education prices sub-sector of the Consumer Price Index) due to COVID-19 suspending face-to-face classes until a later date,” Mr. Ella said.

With inflation levels still in a benign territory, analysts said the central bank continues to have policy space for more easing, but may do so with reservation as it awaits fiscal policy to catch up with stimulus.

“Inflation hovering near the bottom of the BSP’s target range will see the BSP maintain an easing bias with further insurance cuts to aid in the recovery on the table in coming months, particularly if more fiscal support is not forthcoming,” Makoto Tsuchiya, an economist at Oxford Economics, said.

Meanwhile, Jessie Lu, an economist from Continuum Economics, said the central bank may already be “near the end of its easing cycle” after the latest cut worth 50 basis points (bps).

“The central bank is likely to assess the impact of its actions so far, as a series of monetary easing by the BSP and fiscal stimulus by the government are likely to gradually drive a recovery,” she said.

The central bank unexpectedly slashed policy rates by 50 bps on its third policy-setting meeting on June 25. This reduced the overnight reverse repurchase, lending, and deposit rates to record lows of 2.25%, 2.75%, and 1.75%, respectively.

BSP Governor Benjamin E. Diokno said the benign inflation environment allowed them to cut rates anew to curtail the impact of global risks on the country’s growth prospects and to boost market confidence.

“With the policy rate now at 2.25%, the scope for further policy rate cuts may be limited in the meantime with the real interest rates nearing zero,” Mr. Roces said.

The central bank has already unleashed cumulative cuts worth 175 bps this year, following the 75 bps in 2019. The 250-bp rate reductions have already more than offset the 175 bps of rate hikes in 2018 when inflation soared.

The Monetary Board’s fourth policy-setting meeting is scheduled on Aug. 20.

Analysts’ June inflation rate estimates (2020)