BSP expects inflation in July at 4%-4.8%

By means of Luisa Maria Jacinta C. Jocson, News reporter

Headline inflation may have accelerated in July, potentially ending seven straight months of inflation staying within targetFlation, the Bangko Sentral ng Pilipinas (BSP) said this on Wednesday.

The central bank’s monthly forecast showed that inflation was likely to remain within a range of 4% to 4.8% in July.

This would be faster than the 3.7% in June. InFIn July 2023 the percentage was 4.7%.

InFBetween December 2023 and June 2024, growth remained within the 2-4% target.

The central bank previously said inflation could temporarily rise above the target range in July before returning to target in August.

The Philippine Statistics Authority is expected to release the figures in JulyFdata on August 6.

“Higher electricity rates, along with higher prices for agricultural commodities such as vegetables, meat and fruit, along with higher domestic oil prices, are the main sources of upward price pressure for the month,” the BSP said.

In July, households served by Manila Electric Co. served an upward adjustment in the electricity rate for the month by P2.1496 per kilowatt hour (kWh). This brought the total rate for an average household to P11.6012, compared to P9.4516 per kWh the previous month.

The adjustments in pump prices amounted to a net increase of P1.30 per liter for gasoline for the month of July. Meanwhile, diesel and kerosene saw a net decline of P0.90 and P1.70 per liter, respectively.

“These factors are expected to be oFPartially offset by lower rice and fruit prices and the appreciation of the peso,” the BSP said.

The average price of a kilo of well-milled rice ranged from P45-P55 at the end of July and P48-P55 at the end of June. Normal white rice priced at P45-P50 from P45-P52.

Rice inflation fell to 22.5% in June from 23% a month ago, marking the third straight month of slower rice in June.Flat.

The peso appreciated to P58.365 per dollar on July 31, up 24.5 centavos from its P58.61 Fend on June 28.

INSIDE TARGET?
Meanwhile, analysts expect an increaseFwill accelerate month on month, but will still remain within the target range of 2-4%.

“Headline inflation could return to target in July, reaching 3.8%, with price pressures easing at a more favorable pace to start the second half of the year,” Metropolitan Bank & Trust Co. chief economist. (Metrobank), Nicholas Antonio T. Mapa That’s according to the bank’s latest Wealth Insights report.

Michael L. Ricafort, chief economist of Rizal Commercial Banking Corp., expects inflation to accelerate to 4%, but still within the range of the central bank’s target.

Mr Ricafort pointed to the inflationary impact of Typhoon Carina and the southwest monsoon.

“Realistically, there may be a temporary increase in prices in the hard-hit areas until logistics normalize, also in view of some damage to agriculture… which could lead to a temporary increase in food prices,” he said.

The latest data from the Department of Agriculture shows that agricultural damage from the typhoon and southwest monsoon amounted to P1.21 billion as of July 31.

Rice was the most affected crop and was responsible for more than half (52.47%) of the damage, or €635.17 million.

For the coming months, inFThe pressure is expected to ease further, with Mr Mapa expecting September headlines to potentially slow to around 2%.

“This significant decline is mainly due to the government’s tariff reduction reducing rice prices, which has a major impact on the consumer price index (CPI),” he said.

In June, President Ferdinand R. Marcos Jr. signed an executive order lowering the tariffFfs on rice imports to 15% until 2028 to dampen rice prices.

“The combination of lower rice prices and a favorable basis eFfects could enterFtowards the lower end of the central bank’s target range. This trend signals a potential shift towards a more stable price environment, which could influence future economic policies,” Mr Mapa added.

The central bank is also expected to soon start cutting interest rates as inflation declines, analysts said.

“The BSP is expected to start a cycle of rate cuts. This shift in monetary policy could boost economic growth by encouraging new investments in various sectors,” Mr Mapa said.

Mr Ricafort said the Monetary Council is likely to cut by 25 basis points (bps) at its August 15 meeting, especially if inflation remains within target.

The Monetary Board has raised borrowing costs by a total of 450 basis points between May 2022 and October 2023, bringing the policy rate to a more than 17-year high of 6.5%.

BSP Governor Eli M. Remolona Jr. has said they are on track to cut spending in August, up to a total of 50 basis points for all of 2024.