BSP: July inflation could be as low as 2%

THE OVERALL RISE in prices of widely used goods could have eased to its slowest pace in more than two-and-a-half years last month, the central bank announced on Wednesday, citing lower rice and liquefied petroleum gas (LPG) prices, cheaper electricity rates and a stronger peso that made imports cheaper.

The Bangko Sentral ng Pilipinas (BSP) Department of Economic Research told reporters in an e-mail that it “projects the July 2019 inflation to settle within the 2.0-2.8% range,” explaining that “[l]ower rice and domestic LPG prices, along with downward adjustment in electricity rates and the recent peso appreciation” can be expected to have tempered inflation pressures last month.

The floor of BSP’s estimate would be the slowest in more than two-and-a-half years or since October 2016’s 1.8%, while the ceiling compares with June’s 2.7% and the 5.7% clocked in July last year.

BSP’s July estimate would take inflation in the first seven months to a 3.2-3.31% range against the central bank’s downward-adjusted 2.7% forecast average and 2-4% target band for 2019, as well as the Development Budget Coordination Committee’s 2.7-3.5% assumption. Actual headline inflation averaged 3.4% last semester.

Data from the Philippine Statistics Authority — which will report July inflation data on Aug. 6 — show average retail price of well-milled rice fell by 4.2% and 4.3% year-on-year in the first and second weeks of July, respectively, to P42.88 per kilogram (/kg) as of the second week, while average retail price of regular milled rice dropped by 6.2% and 6.8% annually in the first and second weeks, respectively, to P38.40/kg as of the second week.

Moreover, the overall rate of Manila Electric Co. — the country’s biggest electricity distributor — dropped for the third straight month by P0.1068 per kilowatt-hour to P9.985/kWh in July.

Rice accounts for 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.

Supporting importers, the peso finished P50.89 against the dollar on Wednesday, stronger than end-July 2018’s P53.095 close, while the local currency’s weighted average amounted to P51.109 to the greenback, stronger than the year-ago P53.415, according to data from the Bankers Association of the Philippines.

At the same time, the BSP said on Wednesday, the impact of reductions in rice, LPG and electricity prices as well as of the stronger peso was “partly offset by higher prices of petroleum and food items” in July.

Energy department data show year-to-date adjustments of fuel pump prices yielding net increases of P5.95 per liter for gasoline, P3.80 per liter for diesel and P2.05/liter for kerosene as of July 23.

BSP Governor Benjamin E. Diokno told reporters on the sidelines of a forum on July 23 that inflation could settle “below two” percent in the third quarter as food and oil prices ease, citing “base effects” of multi-year-high rates last year.

The central bank, whose Monetary Board meets on Aug. 8 for its fifth policy review for 2019, has signalled further cuts in benchmark interest rates on the table after it reduced such borrowing costs by 25 basis points in May — following a cumulative 175 bp hike last year in the face of multi-year-high monthly inflation rates that brought 2018’s average to a decade-high 5.2% — and banks’ reserve ratio requirement by 200 basis points after a cumulative reduction of the same magnitude last year. — Karl Angelo N. Vidal