Inflation inches up to 2.8% in July

By Lawrence Agcaoili

MANILA, Philippines – Inflation edged up to 2.8 percent in July from the revised 2.7 percent in June, giving monetary authorities more flexibility as the consumer price index remains below the midpoint of the target set by the Bangko Sentral ng Pilipinas.

BSP Governor Nestor Espenilla Jr. said the central bank continues to see a manageable inflation outlook over the policy horizon after taking into consideration the latest inflation reading in July.

This brought the average inflation to 3.1 percent in the first seven months from 1.4 percent in the same period last year.

Espenilla said inflation is projected to remain close to the midpoint of the two to four target from 2017 to 2019.

“The inflation path will be supported by the continued strength of the domestic economy as well as negative base effects in the last four months of 2017,” Espenilla said.

Socioeconomic Planning Secretary Ernesto Pernia said the higher annual increase in the transportation index, which can be traced to the rise in railway fares by the Philippine National Railways (PNR) in July, pushed up non-food inflation to 2.4 percent from 1.9 percent in June.

Higher domestic petrol prices – unleaded gasoline, diesel, kerosene, and liquefied petroleum gas – also contributed to faster increases in the cost of transportation.

Pernia, however, said the headline inflation in July is still lower than the market expectations of three percent, and well within the government’s target of two to four percent this year.

Core inflation, meanwhile, which excludes select food and energy prices, grew at the slowest pace this year at 2.1 percent in July from 2.6 percent in June.

Pernia said it is crucial to for the government to ensure adequate supply of rice to prevent a spike in rice inflation especially during the prevailing lean months of rice production.

“As the Philippines enters its lean months for rice production, it is important for the government to ensure adequate supply of rice to prevent inflationary pressures. Along this line, the planned government-to-private sector rice importation scheme is a step in the right direction. Congress should also act fast to amend domestic laws to end the quantitative restrictions on rice,” he said.

Economic managers, through the Cabinet-level Development Budget Coordination Committee (DBCC), maintained the projected gross domestic product (GDP) product target of 6.5 to 7.5 percent despite the slowdown in the first quarter.

“The within-target path of inflation over the policy horizon provides the BSP with the flexibility to assess our monetary tools to enhance further our responsiveness to the evolving requirements of the economy with due consideration of external factors with potential impact on domestic monetary conditions,” Espenilla said.

BSP Deputy Governor Diwa Guinigundo earlier said authorities are convinced inflation already peaked this year at 3.4 percent in March and April

Eugenia Victorino, economist at ANZ Bank, said upside risks to future inflation are significant as the first round effects of the comprehensive tax reform program (CTRP) would push inflation by 0.9 percentage points.

“Coupled with the persistent rise in credit growth, we reiterate our view that monetary tightening is inevitable. We still expect a 25-basis point hikes in the interest rate corridor by the end of 2017,” she said. – With Czeriza Valencia

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