Inflation is likely to have declined to 3.7% in August.

By means of Luisa Maria Jacinta C. Jocson, Reporter

Headline inflation likely eased in August, returning within the central bank’s target range of 2-4%, amid a decline in rice and fuel prices, analysts said.

A Business world a poll of 15 analysts in August yielded an average estimate of 3.7% for the consumer price index (CPI). This is within the 3.2-4% forecast of the Bangko Sentral ng Pilipinas (BSP) for this month.

August inFInflation is also expected to be slower than a nine-month high of 4.4% in July and 5.3% in the same month a year ago.

The Philippine Statistics Authority (PSA) will release August inflation data on Thursday (September 5).

“Higher electricity tariffs and higher agricultural commodity prices, due to adverse weather conditions, are the main sources of upward price pressure this month,” the BSP said.

“These factors are expected to be offset by lower domestic oil prices and lower rice, fish and meat prices, along with the appreciation of the peso,” the BSP said.

Ruben Carlo O. Asuncion, chief economist of Union Bank of the Philippines, Inc., said this in AugustFGrowth is likely to have slowed, mainly due to the decline in rice prices.

“We expect lower rice tariffs to have significant downward pressure on prices,” Sarah Tan, an economist at Moody’s Analytics, said in an email.

Rice in itFInflation fell to 20.9% in July from 22.5% in June, marking the fourth consecutive month of lower rice inflation. Rice typically accounts for almost half of total incomeFlat.

“August last year was when rice prices started to rise due to a global supply crunch. But because of lower tariffFIn 2024, rice prices have remained broadly stable, causing the overall CPI (consumer price index) to decline significantly year-on-year,” HSBC economist for ASEAN (Association of Southeast Asian Nations) Aris D. Dacanay said.

In June, President Ferdinand R. Marcos Jr. lowered the tariffFf on rice imports from 35% to 15% until 2028 in an effort to dampen rice prices.

Slower inFlation” may have been caused by the food basket in the first placeFThis is attributed to weak rice imports and heavy rainfall disrupting local food production,” said Robert Dan J. Roces, chief economist at Security Bank Corp.

“These factors have likely led to continued growth in domestic food pricesFaffecting rice,” he added.

Meanwhile, analysts also noted slower transportationFmay have contributed toFThe solution lies within BSP’s 2-4% target.

“The biggest hurdle from July’s 4.4% headline rate should come from a big drop in transportation inflation, following the significant drop in pump prices in recent weeks,” said Miguel Chanco, chief emerging Asia economist at the Pantheon.

“Add to the disinFlationary impulse is the signFA sharp drop in fuel prices throughout the month,” Mr Dacanay said.

In August alone, pump price adjustments amounted to a net decrease of P2.70 per liter for gasoline, P2.80 per liter for diesel and P3.70 per liter for kerosene.

“We estimate a double-digit annual growth decline of 10% in retail oil prices, and diesel prices have the largest sales volume that could partially disappear.FWe have achieved the estimated 6.7% year-on-year increase in electricity rates for August,” Mr. Asuncion said.

On the other hand, analysts also noted potential upside risksFin August, such as the impact of Typhoon Carina and the southwest monsoon that hit Luzon in late July.

“The impact of Typhoon Carina which struck in July is expected to be reflected in the August release in the form of higher prices for agricultural products such as vegetables,” Ms Tan said.

The latest data from the Ministry of Agriculture showed that agricultural damage caused by Typhoon Carina and the southwest monsoon amounted to 4.73 billion euros. Rice was the worst affected crop, accounting for 22.9% or P1.08 billion of the total damage.

“We believe that favorable base effects, especially for rice, will outweigh the continued negative impact of Tropical Depression Butchoy and Typhoon Carina on overall food prices,” said Philippine National Bank economist Alvin Joseph A. Arogo.

Ms Tan also said the utilities are in placeFGrowth likely accelerated in August when Manila Electric Co. (Meralco) increased electricity prices.

In August, Meralco increased rates by P0.0327 per kilowatt hour (kWh), bringing the total rate for an average household to P11.6339 per kWh from the previous month’s P11.6012 per kWh.

ROOM FOR MORE RATE REDUCTIONS?
InsideFWith the economy likely to be in a downward trend, analysts expect the central bank to continue its easing cycle.

“Must be inFlation print in August and con. in the coming monthsFI maintain that the July peak was just a blip, and it wasFIf the BSP is indeed in a downtrend, as the BSP expects, this will constitute a scam for the BSPFI am inclined to make another rate cut in the fourth quarter,” Ms Tan said.

In August, the Monetary Board cut the target reverse repurchase (RRP) rate by 25 basis points (bps) to 6.25%, from a 17-year high of 6.5%.

This was the FThe first time the BSP cut rates in almost four years or since November 2020.

The BSP could cut rates further to accommodate any rate cuts from the U.S. Federal Reserve, said Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort.

“We believe this will support the BSP’s rate cut cycle and we expect another cut of at least 25 basis points in the fourth quarter. If the Fed aggressively cuts to 50 basis points, the BSP will likely match this rate cut,” said Patrick M. Ella, economist at Sun Life Investment Management and Trust Corp.

Money markets are a fraudFReuters reported the Fed’s first cut of this cycle by 25 bps at the September meeting, with a 33% chance of a huge 50 bp cut.

“A continued slowdown in August could translate into another RRP cut and a possible 0.5% to 1% reduction in the RRP before the end of the year,” said Emilio S. Neri, Jr., chief economist of the Bank of the Philippine Islands.

BSP Governor Eli M. Remolona, Jr. previously said they could implement another 25 basis point rate cut in the fourth quarter.

For his part, Mr Dacanay expects the policy rate to reach 6% at the end of 2024.

“We also expect the core CPI to continue its gradual moderation, largely due to the central bank’s tight grip on monetary policy, giving the BSP room to cut the policy rate by 25 basis points to 6% by the end of the year,” he added.

On the other hand, De La Salle University economist Mitzie Irene P. Conchada said there are some risks that could delay the BSP’s continued policy easing.

“External factors such as calamities and external events can have an influenceFand result in an upward trend towards the end of the year. Moreover, I believe the BSP will maintain its interest rates at the next policy meeting,” she said.

The last two policy meetings of the year for the BSP are scheduled for October 17 and December 19.