Philippine inflation slows to 22-month low in June on food, fuel price declines

08, Jul. 2019

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MANILA, NNA – Headline inflation in the Philippines eased to 2.7 percent in June from 3.2 percent the previous month, the slowest pace in 22 months, as food, and fuel prices dropped sharply, data released Friday by the Philippine Statistics Authority showed.

The latest figure is slightly lower than the market consensus of 2.8 percent, and well within the central bank’s projected range of 2.2 percent to 3 percent.

Key points:

―― The June number is the lowest since 2.6 percent in August 2017, and is mainly the result of the slower rate in the index of heavily-weighted food and non-alcoholic beverages. That was also 2.7 percent, compared to 3.4 percent in May.

―― National Statistician Claire Dennis Mapa told reporters that the deceleration in the food inflation basket was due to declines in rice prices, which came in at -1.7 percent in June, slowing from -0.7 percent in May.

―― Mapa said downtrend in inflation is also due lower transport prices, with the petroleum and fuel components falling significantly to -4.1 percent from 4.2 percent in May thanks to declines in international oil prices.

―― Core inflation, excluding selected food and energy items, also slowed to 3.3 percent from 3.5 percent in May.

―― On a seasonally adjusted basis, month-on-month consumer prices rose at slower 0.2 percent pace in June from 0.3 percent in May.

―― “The streamlining of food supply continues to drive down food inflation,” the Philippine Department of Finance said in a statement, referring to the law implemented this year to address rice supply issues which pushed up prices in previous years. “Lower petroleum prices in the previous month also helped tame non-food inflation,” it added.

―― The National Economic and Development Authority noted adverse weather conditions, such as the ongoing mild El Nino phenomenon and the possibility of nine to 13 typhoons striking the country in the coming months, remain upside risks to inflation. “The government will continue putting in place preemptive measures to mitigate the impact of weather-related shocks and uncertainties in the international oil market,” it said.

Takeaways:

―― “Almost all subsectors showed slower inflation in June compared to the previous month as base effects also kicked in,” Nicholas Mapa, senior economist at the ING Bank Manila, wrote in a comment e-mailed to media. “Core inflation also grinded (sic) lower… signaling that pervasive price pressures have begun to abate.”

―― With consumer prices seen stabilizing in the months ahead, economists see the Philippine central bank further easing its monetary policy this year.

―― “Easing inflation and benign inflationary pressures imply that the Bangko Sentral ng Pilipinas’ will firmly be focused on growth,” Noelan Arbis, economist at HSBC, wrote in a note. “Indeed, we expect the recently implemented policy rate and RRR cuts to be the start of a monetary loosening cycle for the BSP.”

―― HSBC forecast the central bank will cut its key rate by another 25 basis points in August and in the fourth quarter, while ING also sees another cut if the inflation rate continues to drop in July.