Inflation likely higher at 4.9%

INFLATION could have snapped a six-month decline in August due to higher fuel prices and the impact of recent typhoons, analysts polled by The Manila Times said.

The median forecast in a survey of 13 economists was 4.9 percent, within the Bangko Sentral ng Pilipinas’ (BSP) 4.8- to 5.6-percent projection for the month and up from June’s 4.7-percent result.

Not all were of the view that inflation had gone higher, with six predicting a continued easing from January’s 14-year high of 8.7 percent.

Data for August will be released by the Philippine Statistics Authority on Tuesday, September 5.

Zamros Dzulkafli of Maybank’s Investment Banking Group said the BSP’s cumulative rate hikes of 425 basis points since last year would have continued to temper inflation, which he expects to have fallen to 4.4 percent last month.

While price pressures are rising, he said that monthly inflation was still likely to return to the BSP’s 2.0- to 4.0-percent target before the end of the year and average 5.5 percent for 2023.

Inflation risks remain skewed to the upside, Dzulkafli continued, noting that the onset of the El Niño weather pattern would prevent substantial drops in food prices.

“India’s recent decision to ban exports of non-basmati rice brings further upside risk to elevated rice inflation, considering that rice’s CPI (consumer price index) weight in [the] PH CPI basket is substantial at 8.9 percent,” he added.

Pantheon Macroeconomics economist Miguel Chanco also expects inflation to have dropped anew, forecasting a 4.5-percent reading for August.

A likely decline in housing and utilities inflation would be partially offset by a moderation in transport deflation, he said.

“Our core view still is that the BSP will start easing from November, assuming there are no credible inflation shocks before then,” Chanco added.

The central bank is likely to “take its foot off the tightening pedal if allowed by more cooperative inflation numbers,” he continued, with second-quarter economic growth having slowed much more than expected.

HSBC Global Research economist Aris Dacanay acknowledged that price pressures had risen in August but said that this would have only slowed the inflation decline to 4.6 percent.

He said that key items, notably rice, saw a substantial price hike in August due to India’s export ban, while global oil prices surged due to Organization of Petroleum Exporting Countries supply cuts, causing domestic diesel prices to rise sharply.

However, Dacanay said that these were partially offset by a 2.5-percent reduction in electricity rates and a gradual normalization of vegetable prices, including those for onions.

De La Salle University economist Mitzie Irene Conchada, Union Bank chief economist Ruben Carlso Asuncion, and Philippine National Bank economist Alvin Arogo also expect a smaller inflation decline to 4.6 percent print.

Conchada said the trend could end in succeeding months given higher fuel and food prices.

“Prices remain vulnerable to food security issues in the domestic market as well as in the international market,” she added.

Arogo, who cited base effects for his forecast, noted rising price pressures but said that the year-on-year rate was likely to keep falling as more favorable base effects came into play.

“As a baseline view, we believe that the BSP will decide to leave the key policy rate unchanged during its upcoming meetings in September, November, and December,” he added.

Sun Life Investment Management and Trust Corp. economist Patrick Ella, on the other hand, said inflation could have increased by 4.9 percent in August, “driven by food due to recent typhoons and rising rice prices.”

A key factor moving forward, he added, would be if local rice prices remained in check if imports came in “at good prices.”

ING Manila Bank senior economist Nicholas Antonio Mapa expects inflation to have risen to 5.0 percent, pointing to a resurgence in global fuel prices and elevated costs for some food items due to bad weather.

“The pop in headline inflation likely means BSP will be on hold for the rest of the year, with the central bank mindful of the ongoing slowdown of the economy as growth loses steam,” Mapa added.

Rizal Commercial Banking Corp. chief economist Michael Ricafort, Colegio De San Juan de Letran Graduate School economist Emmanuel Lopez, and Security Bank Corp. Sr. Assistant Vice President and chief economist Robert Dan Roces also forecast an August result of 5.0 percent.

Ricafort said the rise would have been driven by higher food — particularly rice — and fuel prices.

Roces said that while “the current diesel pump price is significantly lower than the P75 per liter average recorded in June of the previous year, food and fuel prices continue to be the main drivers of inflation.”

“Notably, farmgate prices of other food items decreased in August compared to July. Despite this, retailers may either be reluctant to reduce current prices or the price reduction may be taking some time.”

Roces said that monthly inflation was still on track to hit the BSP’s target this year unless there were sustained surges in rice and fuel prices.

China Banking Corp. chief economist Domini Velasquez, meanwhile, said significant month-to-month increases in rice, vegetable, and fuel prices would have driven August inflation to 5.3 percent.

She attributed the increase in food prices to consecutive typhoons since late July and elevated imported rice costs due to export restrictions in India and reported hoarding in Thailand.Higher cooking gas prices, the potential impact on transport inflation from an 8-week rise in domestic pump prices and increased toll fees, and the influence of a depreciated peso were also cited as likely contributing factors.

“Despite the projected higher headline rate in August, core inflation is expected to continue its downtrend to around 6.0 percent in August,” Velasquez said.

“If realized, we do not expect BSP to react immediately with higher policy rates to the expected inflation print. We still expect inflation to fall within the BSP’s target by November,” she added.

Oxford Economics Japan assistant economist Makoto Tsuchiya had the highest inflation forecast of 6.0 percent, which he said would be due to higher fuel and food costs.

“Domestic pump prices have been on the rise since mid-July, and this will likely show up in the monthly CPI data,” Tsuchiya said.

“Beyond August, we expect disinflation to resume, reaching the BSP’s target by the end of the year, allowing the BSP to cut its policy rate in the first quarter of 2024,” he added.

“However, supply-side developments are highly uncertain, and so this outlook comes with risks. The expectation for higher-for-longer policy rates in the US is another risk, and the odds of tight monetary policy persisting in the Philippines are rising.”

Source: Analysts: Inflation likely higher at 4.9% (

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