Food, oil to stoke June inflation

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The Philippine Statistics Authority (PSA) will report official inflation data on Thursday. Latest forecasts show that prices have definitely picked up faster than the 2.5% pace clocked in June 2017. — BW FILE PHOTO

By Melissa Luz T. Lopez, Senior Reporter

INFLATION likely clocked in faster in June on the back of rising food and oil prices coupled with a weaker peso, economists said in a BusinessWorld poll, with some noting that another rate hike may still be on the table for the central bank to temper prices.

A poll among 12 economists yielded a median inflation forecast of 4.7% for the month, which if realized will pick up from May’s 4.6% climb to a fresh high in at least five years. This also falls in the middle of the 4.3-5.1% estimate range given by the Bangko Sentral ng Pilipinas (BSP) Department of Economic Research last Friday.

The Philippine Statistics Authority (PSA) will report official inflation data on Thursday. Latest forecasts show that prices have definitely picked up faster than the 2.5% pace clocked in June 2017.

Michael L. Ricafort, economist at the Rizal Commercial Banking Corp. said the major inflation drivers last month were elevated world crude oil rates, a weaker peso-dollar exchange rate, as well as higher prices of sugar and rice in the local market.

Food inflation reached 5.5% in May, with a faster pace tallied in the provinces at 5.6% versus the 4.5% year-on-year increase in Metro Manila, according to PSA data.

The analysts pointed out that inflation may be approaching its peak, in line with the BSP’s forecast that prices will see its fastest climb within the third quarter. However, second-round effects of the tax reform law by way of higher transport fares and wage hike petitions are seen to drive costs up within the second half of 2018.

“Prices of basic commodities, especially oil, haven’t tapered yet. Also with the depreciation of the peso, imports are getting more expensive,” added Mitzie Irene P. Conchada, associate dean at the De La Salle University School of Economics.

The peso has been trading at the P53 level versus the dollar since June 11 to mark a sustained depreciation at a fresh 12-year low. An economic bulletin from the Finance department showed that the peso has depreciated by 7.42% against the greenback year-to-date, the second-worst performer in the region next to the Indian rupee’s 7.46%.

A handful of market observers believe that the sustained peso weakness will prompt further interest rate hikes from the BSP despite the back-to-back increases announced in May and June.

“If the peso continues to depreciate significantly in early August, we may see the BSP hiking again on their Aug. 7 meeting. That seems to be a major consideration in their policy decisions lately,” said Emilio S. Neri, Jr., lead economist at the Bank of the Philippine Islands.

Rising inflation expectations could also prompt the BSP to raise benchmark rates anew, according to Security Bank Corp. economist Angelo B. Taningco.

Others, however, said the central bank may be done with its tightening moves for now.

“Moving forward, if global oil prices continue to be well-behaved from hereon, inflation might even come down to below the 4% levels towards yearend and in this regard, we don’t expect any more BSP rate hikes for 2018,” said Ildemarc C. Bautista, vice-president and head of research at the Metropolitan Bank & Trust Co.

The BSP expects full-year inflation at 4.5%, well beyond its 2-4% target.