By Luisa Maria Jacinta C. Jocson, Senior Reporter
HEADLINE INFLATION likely fell to a near six-year low in July on account of softer prices of food and fuel, analysts said.
A BusinessWorld poll of 17 analysts yielded a median estimate of 1.2% for the July consumer price index, throughout the central bank’s 0.5%-to-1.3% forecast for the month.
The July print could be slower than the 1.4% in June and 4.4% clip a 12 months ago.
If realized, this might be the slowest inflation in nearly six years or for the reason that 0.6% print posted in October 2019.
The Philippine Statistics Authority is scheduled to release the July inflation data on Tuesday (Aug. 5).
“For July inflation, my forecast is 1.2% and drivers proceed to be soft food prices and muted nonfood prices, especially in energy despite some pump price adjustments of late,” Sun Life Investment Management and Trust Corp. economist Patrick M. Ella said.
In July, pump price adjustments stood at a net decrease of P1.10 a liter for gasoline and P1.10 a liter for kerosene. However, it stood at a net increase of P1.20 for diesel.
Pantheon Macroeconomics Chief Emerging Asia Economist Miguel Chanco said the headline rate could have slowed in July “because of what ought to be a drop in food inflation into the red, outright.”
“Food and energy prices will likely remain subdued, although the impact of lower rice tariffs, which took effect in late June 2024, will fade from annual comparisons,” Moody’s Analytics economist Denise Cheok said.
Nicholas Antonio T. Mapa, chief economist at Metropolitan Bank & Trust Co. said July will likely mark the fifth straight month of below-target inflation this 12 months as rice deflation persists.
Rice inflation has been on the decline in the previous few months as the federal government has deployed several measures to tame prices of the staple grain. These include slashing tariffs on rice imports, declaring a food security emergency on the commodity, and lowering the utmost suggested retail price (MSRP) for imported rice.
In June, rice inflation decelerated for the sixth straight month to a record 14.3%, the largest drop since 1995.
“Furthermore, the high base effect (provided that inflation peaked at 4.4% in July 2024) is predicted to assist keep the year-on-year figure subdued despite the monthly increase,” Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said.
Rizal Industrial Banking Corp. Chief Economist Michael L. Ricafort also noted the one-year anniversary of the tariff cut on rice imports, which were slashed to fifteen% from 35% in July 2024.
“Base effects likely played an enormous role but retail prices, too, remained manageable month on month,” HSBC economist for ASEAN Aris D. Dacanay said.
“Softer prices of rice, fruits, and LPG could have also contributed to the slowdown, though these could have been tempered by higher costs of fuel, electricity, and other key food items reminiscent of vegetables, meat, fish, eggs, and cooking oil,” Chinabank Research said.
Analysts also noted the upside risks to the inflation print for the month.
“The uptick was mainly driven by higher oil prices, electricity rates, and choose food items reminiscent of vegetables, fish, and meat,” Mr. Neri said.
Manila Electric Co. (Meralco) hiked rates by P0.4883 per kilowatt-hour (kWh) in July, bringing the general rate for a typical household to P12.6435 per kWh from P12.1552 per kWh a month earlier.
“Upward price pressures were seen, nevertheless, in electricity rates and diesel but we don’t think these were enough to offset the deflationary pressures from rice and gas,” Mr. Dacanay said.
BAD WEATHER
Meanwhile, some analysts surveyed expect July inflation to speed up from a month ago as bad weather disrupted economic activity in key areas.
“The uptick is driven by lagged effects of food and transport costs, weather-related supply disruptions from early monsoon and typhoon activity, and seasonal demand linked to high school openings and midyear bonuses,” Ruben Carlo O. Asuncion, chief economist at Union Bank of the Philippines, said.
The newest data from the Department of Agriculture showed damage to the agriculture sector from three successive tropical storms and the southwest monsoon has climbed to P3 billion.
“The recent wave of typhoons and bad weather could have also affected domestic supply chains especially for food, which could have caused the worth increases,” Oikonomia Advisory & Research, Inc. economist Reinielle Matt M. Erece added.
Mr. Asuncion also noted exchange rate movements influenced import prices.
The peso fell to P58.32 against the greenback at end-July from its finish of P56.33 at end-June. The peso’s close at end-July was its weakest in almost six months or since its P58.34 finish on Feb. 4.
FURTHER EASING?
With inflation still below the 2-4% goal, analysts said the Bangko Sentral ng Pilipinas (BSP) has good enough room to proceed on its rate-cutting cycle.
“Inflation stays below goal and is forecast to stay inside goal over the policy horizon, giving BSP ample space to chop rates and support moderating growth momentum,” Mr. Mapa said.
Chinabank Research expects the central bank to deliver one other 25-bp cut at its meeting later this month.
“With inflation possibly falling to its lowest since October 2019 — and average inflation expected to stay below goal this 12 months — we expect the BSP has room to proceed easing monetary policy with a 25-bp rate cut at its August meeting,” it said.
The Monetary Board’s next meeting is on Aug. 28.
“We’re currently a 25-bp rate cut from the BSP this month, because the window for alleviating could likely narrow starting within the fourth quarter, with headline inflation seen rebounding toward the three% level, and possibly even higher in 2026,” Mr. Neri said.
BSP Governor Eli M. Remolona, Jr. has said a rate cut remains to be on the table at their policy review later this month.
“The BSP may proceed its policy easing with one other 25-bp cut of their next meeting. That is as inflation continues to be below the two% goal and gross domestic product (GDP) growth remains to be expected to be below the perfect 6% growth or faster,” Mr. Erece said.
Chinabank said a weaker-than-expected second-quarter GDP print would likely further strengthen the case for a cut.
Meanwhile, Security Bank Corp. Vice-President and Research Division Head Angelo B. Taningco said there’s a possibility that the BSP could hold rates this month.
“We still expect further monetary easing but is probably not immediate for this month of August because the recent and expected peso depreciation could weigh on it,” he said.
The central bank could also remain cautious moving forward, analysts said.
“Subsequent moves following a possible August cut are expected to be more measured, with our in-house view seeing further reductions within the fourth quarter as less likely,” Mr. Neri said.
He cited inflation risks, a protracted hawkish stance from the Federal Reserve and substantial current account deficit, which could constrain the BSP’s flexibility in adjusting monetary policy.
“A pause within the fourth quarter could also be warranted to assist manage pressure on the local currency,” Mr. Neri added.
Mr. Ella said a rate cut within the fourth quarter is feasible “if growth will surprise on the downside on account of trailing impact of world tariffs.”
“The BSP shall be closely monitoring potential inflationary pressures stemming from geopolitical tensions and tariff-related supply-chain disruptions,” Ms. Cheok added.
Mr. Chanco expects the Monetary Board to chop a minimum of twice before the 12 months ends.
Mr. Remolona earlier said he’s keeping to his outlook for 2 more rate cuts this 12 months. After August, the Monetary Board has two remaining meetings scheduled for October and December.
“Moving forward, inflation will likely begin its regular climb because the favorable base effects from lower rice prices fade,” Mr. Dacanay said.
“Nonetheless, with inflation staying throughout the lower-end range of the BSP goal band, there’s room for the BSP to proceed its easing cycle and, perhaps, deepen the cycle further within the last five months of the 12 months.”