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Oil prices may keep inflation high

GLOBAL OIL PRICES have surged this year, as vaccination rollouts prompted many countries to lift restrictions. — PHILIPPINE STAR/ MICHAEL VARCAS

INFLATION will likely remain elevated in the coming months, amid the looming impact of soaring global oil prices on domestic goods.

The continued rise in global oil prices puts pressure on the domestic market, since the country gets most of its oil requirements abroad, Finance Undersecretary and Chief Economist Gil S. Beltran said.

“Crude oil prices trend up as global recovery boosts oil demand. A quick pass-through of international crude oil prices on domestic prices is desirable since the country is an oil importer,” he said in an economic bulletin on Wednesday.

The price of the international benchmark Brent crude inched up further by 0.5% to $75.57 a barrel on Tuesday. Oil prices surged by more than 45% in the first six months as demand picked up with the reopening of more countries.

Market volatility also persisted after oil-producing countries failed to reach an agreement to plug the gap in production.

First Metro Investment Corp. on Wednesday projected inflation to average at 4.2% by year’s end, above the central bank’s target, mainly due to the impact of higher global oil prices.

Headline inflation rose by 4.1% in June, slowing from 4.5% in May but still higher than 2.5% a year ago. Six-month inflation averaged at 4.4%, above the central bank’s 2-4% target this year and the forecast of 4% for 2021.

The impact of rising global oil prices might only be felt toward the latter part of the year, since there is usually a three- to four-month lag before this pushes local utilities and transport costs higher, Security Bank Corp. Chief Economist Robert Dan J. Roces said.

“Upside risks to inflation are seen from oil prices; economic reopenings in the US and Europe are boosting global economic activity — and by extension, demand for oil,” Mr. Roces said via Viber on Monday.

“Production levels by the Organization of the Petroleum Exporting Countries would dictate the direction of oil prices,” he added.

Dubai crude, which is the benchmark used for oil shipped to Asia, hit $74.359 per barrel on Wednesday.

Economic managers projected Dubai oil prices at $50-70 per barrel this year.

Meanwhile, Mr. Beltran said food price inflation had likely peaked in June, as the additional pork imports helped boost supply.

“Bolstering food productivity is necessary for long-term food price stability,” he said.

The rise in food prices is the second-biggest contributor to overall inflation, which added 1.82 percentage points (ppts) to last month’s index, trailing behind nonfood inflation which had a 1.91 ppts share, according to the bulletin. — B.M.Laforga