Philippine inflation drops to 3.7% in June

Through Luisa Maria Jacinta C. JocsonNews reporter

Headline inflation eased to 3.7% in June after four straight months of acceleration due to slower increases in electricity and transportation costs, the Philippine Statistical Authority (PSA) said.

The PSA reported on Thursday that the consumer price index (CPI) rose to 3.7% year-on-year in June, compared with 3.9% in May and 5.4% in the same month a year ago.

This fell within the Bangko Sentral ng Pilipinas (BSP) 3.4-4.2% forecast for the month, but below the average estimate of 3.9% in a BusinessWorld survey of 14 analysts.

This was also the seventh consecutive month in which inflation settled within the BSP’s target range of 2-4%.

June’s print was the slowest pace in four months or since February’s 3.4% decline. It also matched March’s 3.7% print.

Core inflation, which excludes volatile food and fuel prices, remained stable at 3.1% in June, but slowed from 7.4% a year earlier.

Over the first six months of 2024, headline inflation averaged 3.5%, slightly higher than the central bank’s annual forecast of 3.3%.

“The latest inflation figure is consistent with the BSP’s latest outlook that inflation will remain within the target range for 2024-2025, while inflation expectations remain well anchored,” the Bangko Sentral ng Pilipinas (BSP) said in a statement.

National statistician Claire Dennis S. Mapa attributed the cooling inflation to the slower rise in the housing, water, electricity, gas and other fuel index.

The index rose 0.1%, slower than the previous month’s 0.9% and 5.6% a year ago.

“The main contribution to the decline in inflation of housing, water, electricity, gas and other fuels is due to the faster decline in electricity prices, which had an inflation rate of -13.6%,” Mr Mapa said in mixed English and Filipino.

Electricity inflation fell by 13.6% from the 8.5% drop in May and the 10.3% increase a year earlier.

In June, residential customers charged by Manila Electric Co. were served a reduction in their electricity bills by P1.9623 per kilowatt hour (kWh).

This comes after the Energy Regulatory Commission ordered all distribution companies and electric cooperatives to implement staggered collection of levies on their purchases from the Wholesale Electricity Spot Market in May.

Mr Mapa also noted slower annual growth in the transport index to 3.1%, compared to 3.5% a month ago, mainly due to slowing petrol prices.

The PSA also attributed the downward trend in inflation to slower annual increases in the alcoholic beverages and tobacco products group (3.8% compared to 4.2% a year ago); clothing and footwear (3.2% of 3.4%); furniture, household appliances and routine household maintenance (2.8% of 3.1%) and personal care, and miscellaneous goods and services (3.2% of 3.4%).
“When it comes to the main contributors to headline inflation in June, the top commodity group is food and non-alcoholic beverages, which had a share of 61.9%,” Mr Mapa said.

The heavily weighted food and non-alcoholic beverage index accelerated to 6.1% in June from 5.8% in May, but fell from 6.7% in the same month in 2023.

Food inflation alone accelerated from 6.1% in the previous month to 6.5% in June.

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

Rice was responsible for 45.2% of total inflation, equivalent to 1.7 percentage points (ppt).

PSA data showed that the average price of a kilo of well-milled rice fell from P56.06 in May to P55.96 in June. On the other hand, prices of regular white rice rose to P51.07 in June from P51.03 in May, and prices of specialty rice rose to P64.56 in June from P64.41 in the previous month.

Food inflation was also driven by faster increases in vegetables, tubers, cooking bananas and legumes (7.2% from 2.7%) and meat and other parts of slaughtered land animals (3.1% from 1.6%).

INFLATION FOR THE BOTTOM 30%

Meanwhile, the inflation rate for the bottom 30% of income households accelerated from 5.3% in May to 5.5% in June, but slower than the 6.1% a year ago.

In the January-June period, the inflation rate for the bottom 30% averaged 4.8%.

In the National Capital Region (NCR), inflation fell to 2.3% in June from 3.1% a month ago.

Inflation in areas outside NCR averaged 4.1%, unchanged from the previous month.

The BSP said risks to the inflation outlook for this year and 2025 have been tilted lower due to the tariff cut on rice imports.

President Ferdinand R. Marcos Jr. signed Executive Order No. 62 last month, lowering tariffs on rice imports through 2028 to 15% from the previous 35%.

The measure is expected to reduce retail rice prices by P6 to P7 per kilo, the Agriculture Ministry said earlier.

“The reduction in rice price will definitely have an impact on food inflation and overall inflation. But we will have to wait,” Mr Mapa said.

Despite the downward trend in inflation in June, Mr Mapa said it is still not very clear whether inflation will continue to slow as there are still risks such as higher fuel, electricity and food prices.

“Nonetheless, higher food prices other than rice, transportation costs and electricity tariffs continue to pose upside risks to inflation,” the BSP said.

Mr Mapa said the impact of the recent wage increase on inflation would be visible in the coming months.

“We have seen before the impact of a wage increase on the prices of services. We need to study what the lag effects are, but we have seen in the past that there is an impact on selected commodity groups, in particular personal care and various goods and services,” he said.

A P35 minimum wage increase for workers in NCR was approved last week by the Regional Tripartite Wages and Productivity Board (RTWPB), which would take effect on July 17.

National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan said they will continue to work with relevant agencies to further reduce prices.

“We will continue to work closely with the government, stakeholders and other priority sectors to implement the necessary measures to ensure that the country has sufficient and affordable food supplies – including rice – for every Filipino,” he said.

PEAK IN JULY?

For the coming months, the Metrobank Research and Market Strategy Department said it expects the rate cuts to “substantially slow” headline inflation.

“We remain of the view that monthly annual inflation is likely to peak in July and decline thereafter,” the report said.
ING Bank NV Manila also said a reduction in rates should help lower rice prices.

“The reduction in tariffs is also likely to help mobilize existing rice supplies and should benefit producers and exporters in Vietnam, where much of the rice imported into the Philippines comes from,” the report said.

Michael L. Ricafort, chief economist of Rizal Commercial Banking Corp., said in an email that the latest inflation data could make a case for the BSP to start easing policy.

He said easing inflation “could support possible local rate cuts as early as the second half of 2024, especially if the Fed moves to cut rates.”
“(The) fall in inflation, and the expected declines in the coming months, will make it easier for the BSP doves, including Governor Eli M. Remolona Jr., to make the case for rate cuts,” ING said, adding that it expects the BSP to cut interest rates. by 25 basis points in the third quarter.

Mr Remolona previously said the Monetary Board could start easing at its August 15 meeting, the only policy meeting scheduled in the third quarter.

The BSP may cut by 25 basis points in the third quarter and another 25 basis points in the fourth quarter, the BSP chief added.

“We continue to believe that the Council will start cutting rates next month, cutting them by a total of 75 basis points before the end of the year,” Pantheon Macroeconomics said in a note.

“We expect another 50 basis points of additional cuts in early 2025. Headline inflation now appears safely within the (central) bank’s target of 2-4% for the foreseeable future, barring an unexpected supply shock,” the report said.

On the other hand, Metrobank expects that the BSP will not start cutting interest rates until October.

“Despite the lower inflation path, we continue to believe that the BSP will wait to cut the policy rate until the October 17 meeting with a 25 bp cut, followed by another 25 bp cut on December 19, to support the peso. ” it said.

“We recognize the risk of earlier policy action at the August 15 meeting if July inflation data continues to surprise to the downside, coupled with clearer dovish signals from the US Federal Reserve on its own easing cycle.”