June inflation slowed down to 3.7%

June inflation slowed down to 3.7%
SunStar Business

The drop in electricity and transport costs has helped ease inflation in June which stood at 3.7 percent from 3.9 percent in May.

The Philippine Statistics Authority said on Friday, July 5, 2024, that the slight drop in inflation was mainly due to the decline in electricity prices (-13.7 percent from -8.5 percent), reducing the inflation rate for housing and utilities to 0.1 percent from 0.9 percent.

Transport inflation also fell to 3.1 percent from 3.5 percent, due to lower costs for personal transport (3.5 percent from 5.3 percent) and gasoline (2.3 percent from 5.2 percent) following a price rollback in early June.

Year-to-June average inflation remained at 3.5 percent.

According to the Bangko Sentral ng Pilipinas, the June inflation is within its forecast range of 3.4 to 4.2 percent and is consistent with its latest outlook that inflation will settle within the target range for 2024-2025 with inflation expectations remaining well-anchored.

“The balance of risks to the inflation outlook has shifted to the downside for 2024 and 2025 due largely to the impact of lower import tariffs on rice under Executive Order (EO) 62 (Series of 2024). Nonetheless, higher prices of food items other than rice, transport charges, and electricity rates continue to pose upside risks to inflation,” the BSP said.

Meanwhile, food inflation saw an increase to 6.5 percent in June, up from 6.1 percent in the previous month. This was mainly driven by higher prices of vegetables and meat. Vegetables recorded an inflation rate of 7.2 percent in June, up from 2.7 percent in May, as the onset of the rainy season affected supply.

The uptick in meat prices, with an inflation rate of 3.1 percent for the month compared to 1.6 percent the previous month, was due to higher pork (3.9 percent from 2.4 percent), chicken (2.4 percent from -0.3 percent), and beef (2.8 percent from 2.6 percent) inflation. Pork inflation rose amid the rise in active African swine fever cases. Chicken inflation increased as the temporary import ban on poultry products from the United States and Australia affected supply.

While rice inflation slightly declined, it remained high at 22.5 percent in June from 23.0 percent in May.

“We are committed to maintaining the country’s inflation rate within our target range of three to four percent,” said Neda Secretary Arsenio Balisacan.

In a statement sent, Metrobank Research expects lower rice tariffs to substantially slow headline inflation going forward. The bank estimates that the full impact of the proposed reduction in rice tariffs to be implemented this month will have an impact in August, reducing rice prices by around P7-9 per kilogram.

“Thus, we retain our view that monthly year-on-year inflation will likely peak in July and will trend downwards thereafter,” the bank said.

Metrobank maintains its forecast average inflation to range 3.3 percent to 3.6 percent this year but with the easing, it sees an increased likelihood of settling towards the lower end of the range.

Interest rate

Meanwhile, according to Metrobank, “The lower-than-expected print in June supports the BSP’s recent shift to a more dovish tone, which in turn increases the possibility of a rate cut in the Monetary Board’s policy rate-setting meeting on Aug. 15.”

Despite the lower inflation path, the bank continues to believe the BSP will hold off on cutting policy rates until its Oct. 17 meeting with a 25-bp cut, followed by another 25-bp cut on Dec. 19, to support the peso.

“We acknowledge the risk of earlier policy action in the Aug. 15 MB meeting should the July inflation print continue to surprise on the downside coupled with clearer dovish signals from the US Federal Reserve on its own easing cycle,” Metrobank said.

The interest rate remained unchanged at 6.5 percent in June, the sixth time since its off-cycle policy rate hike in October 2023 to mitigate supply-side inflation pressures.

Fitch Solutions unit BMI said on Friday, June 28, that the Monetary Board of the BSP will likely lower key interest rates by 50 basis points (bps) by October this year.

BMI said the BSP will only start to reduce interest rates after the US Federal Reserve decides to cut rates by 50 bps starting in September. / KOC

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