Inflation expected to have hit 6.3%

INFLATION is expected to have eased for a third straight month in July as lower food prices offset higher power rates and despite a surge in diesel prices.

The median forecast in a Manila Times poll of economists was 6.3 percent, slightly lower than the 6.4 percent recorded in June and within the 5.6- to 6.6-percent estimate issued by the Bangko Sentral ng Pilipinas (BSP) last Friday.

The Philippine Statistics Authority is scheduled to release official July inflation data this Wednesday, Aug. 5.

Pantheon Macroeconomics economist Miguel Chanco, with the lowest forecast of 6.0 percent, said cooling food prices would have led the slowdown.

He added that “transport inflation probably held steady, relative to June at close to 13.0 percent, for the first time in a few months, due to the renewed upward pressure on fuel prices.”

At 6.2 percent, meanwhile, Bank of the Philippine Islands (BPI) lead economist Emilio Neri Jr. and China Bank chief economist Domini Velasquez said lower prices of key food items likely helped offset higher energy costs.

“Prices of other food items, including meat, fish, fruits, vegetables, eggs, sugar, and spices, also softened during the period,” Velasquez said.

“However, these were partly offset by higher electricity rates, increased pump prices following the renewed escalation of tensions in the Middle East, and the lifting of the excise tax exemption on LPG (liquefied petroleum gas) and kerosene.”

Neri said food inflation likely remained relatively “contained amid continued improvements in rice supply, the rebound in energy-related costs more than offset the easing in selected food items.”

However, “higher electricity rates and domestic fuel prices following the rise in global oil prices amid renewed hostilities in the Middle East” could still push inflation higher.

Meanwhile, HSBC Global Research senior economist Aris Dacanay said inflation could have slid to 6.3 percent despite higher diesel prices caused by a flare-up of hostilities in the Middle East.

“Prior to this, fuel prices were relatively benign. As a result, on a monthly average basis, fuel prices were roughly unchanged from the previous month,” he said.

The lagged effects of higher fertilizer prices on food have yet to materialize, however, not to mention the high likelihood of a strong El Niño in the fourth quarter of this year.

“In addition, uncertainty regarding the ongoing peace talks in the Middle East will likely push domestic fuel prices higher next month,” Dacanay said.

Philippine National Bank economist Alvin Arogo and ING Economics both expect inflation to have stayed unchanged at 6.4 percent amid higher energy costs.

“The higher cost of petroleum and electricity could have been offset by lower prices of major food commodities such as rice and vegetables,” Arogo said.

ING said that while food inflation somewhat eased, with lower rice prices providing relief after the sharp increase in June, “fuel inflation is likely to continue edging higher.”

“This is driven by increases in retail fuel prices. Services inflation is expected to remain sticky, reflecting persistent underlying price pressures in the sector,” it added.

With the highest forecast of 6.7 percent, Union Bank chief economist Ruben Carlo Asuncion said renewed pressures from selected food items, utilities and the lingering pass-through of higher fuel and transport costs could have pushed consumer price growth higher.

“We also expect core inflation to continue edging higher, suggesting that underlying price pressures remain broad-based despite the recent moderation in headline inflation,” he added.

“Higher crude prices, a weaker peso, and the projected uptick in inflation should keep inflation and policy risks in focus.”