A wide variety of fish at the Marikina Public Market. — PHILIPPINE STAR/ WALTER BOLLOZOS

By Keisha B. Ta-asan

PHILIPPINE INFLATION probably hit 6% in June amid spiraling oil and food prices and higher electricity rates, according to a median estimate of 16 analysts in a BusinessWorld poll last week, boosting the case for bigger increases in key interest rates.

This would be the quickest since 6.1% in November 2018, and faster than 5.4% in May and 3.7% in June last year, according to data from the Bangko Sentral ng Pilipinas (BSP). It would also breach the central bank’s 2-4% target and the Development Budget Coordination Committee’s 3.7-4.7% estimate this year.

“Higher inflation for the month remains to be driven by persistently elevated oil prices now impacting more and more commodities,” Domini S. Velasquez, chief economist at China Banking Corp., said in an e-mail. “Domestic pump prices increased in all four weeks for the month of June.”

Analysts’ June 2022 inflation rate estimates

Record gasoline prices paired with unrelenting food and commodity costs are adding strain to Filipinos’ cost of living, suggesting that the BSP might have to increase rates further to slow economic growth.

The Philippine Statistics Authority (PSA) will release June consumer price index (CPI) data on Tuesday.

Crude oil prices have spiraled out of control amid concerns over supply since Russia invaded Ukraine on Feb. 24.

Gasoline, diesel and kerosene prices had jumped by P30, P45.90 and P39.75 a liter as of June 28, according to data from the Energy department.

The central bank also expects the price of Dubai crude to average about $106.30 a barrel this year from the $104.04 estimate in May.

“It is inevitable that essential needs will be severely affected by escalating prices,” Colegio de San Juan de Letran Graduate School Associate Professor Emmanuel J. Lopez said in an e-mail.

The minimum fare in traditional jeepneys rose to P11 nationwide starting Friday and to P13 for their modern counterparts.

“We see higher inflation in the second half than in the first half as the second-round effects will likely be more pronounced in the succeeding months due to the increase in the country’s minimum wage,” Philippine National Bank economist Alvin Joseph A. Arogo said. 

The higher minimum wage across all regions took effect last month, which the Labor department said would cushion the impact of high commodity prices.

“Meralco-serviced areas experienced higher electricity prices in June as generation charges climbed,” Ms. Velasquez said, referring to the capital region’s power distributor Manila Electric Co. “Food-inflation also accelerated as transport costs increased, compounded by shortages in key food items such as fish.”

50 BPS
Meralco raised its overall rate by P0.3982 to P10.4612 a kilowatt-hour (kWh) in June from P10.0630 a month earlier.

“Price pressures are largely supply side-driven, Nicholas Antonio T. Mapa, senior economist at ING Bank N.V. Manila, said in an e-mail, referring to the war in Ukraine and supply side chain disruptions. “But it is almost impossible to discount the emergence of demand side pressures.”

“Malls are packed, restaurants are full and traffic is back to pre-COVID levels, showing that consumers are still adamant about spending even in the face of multi-year inflation,” he added.

Russia’s invasion of Ukraine and coronavirus lockdowns in China have worsened supply chain disruptions.

“If the war in Ukraine and the weakening of the peso continue in the next months, inflation will breach 6%,” Mitzie Irene P. Conchada, an economics professor at De La Salle University, said in an e-mail.

The peso closed at P55.09 a dollar on Friday, losing 11.5 centavos from Thursday’s finish, according to data posted on the Bankers Association of the Philippines website. It also weakened by 10.5 centavos week on week.

This was the peso’s weakest finish in almost 17 years, or since it closed at P55.26 a dollar on Oct. 25, 2005.

“The Monetary Board might consider a one-time preemptive 50-basis-point (bp) policy rate hike when it meets on Aug. 18 if inflation’s upside risks remain persistent,” Robert Dan J. Roces, chief economist at Security Bank Corp., said in an e-mail.

Expectations of higher inflation in June could prompt the BSP to be more aggressive in their monetary tightening, economists said.

“A likely rise in inflation coupled with the hawkish tone at the June monetary policy meeting opens the door for a 50-bp rate hike in August,” Standard Chartered Bank and Philippine economist Jonathan Koh said in an e-mail.

The Monetary Board at its June 23 meeting raised the benchmark interest rate by 25 bps to 2.5%. The BSP is prepared to “take all necessary policy action to bring inflation toward a target consistent path over the medium term and deliver on its primary mandate of price stability,” former central bank governor and now Finance Secretary Benjamin E. Diokno said then.

The central bank also raised its average inflation forecast for this year to 5% from 4.6% and to 4.2% from 3.9% for next year. The average inflation is expected to slow to 3.3% by 2024.

The BSP will hold its next policy review on Aug. 18.