by Luisa Maria Jacinta C. Jocson, Reporter
Headline inflation eased to 3.7% in June after four straight months of acceleration due to a slower rise in electricity and transport costs, the Philippine Statistics Authority (PSA) said.
The PSA on Thursday reported that the consumer price index (CPI) rose to 3.7% year on year in June, easing from 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 was below the 3.9% median estimate in a BusinessWorld poll of 14 analysts.
This also marked the seventh straight month that inflation settled within the BSP’s 2-4% target band.
The June print was the slowest pace in four months or since the 3.4% clip in February. It also matched the 3.7% print in March.
Core inflation, which excludes volatile prices of food and fuel, was steady at 3.1% in June but slowed from 7.4% a year earlier.
For the first six months of 2024, headline inflation averaged 3.5%, slightly higher than the central bank’s 3.3% full-year forecast.
“The latest inflation outturn is consistent with the BSP’s latest outlook that inflation will settle within the target range for 2024-2025 with inflation expectations remaining well-anchored,” the Bangko Sentral ng Pilipinas (BSP) said in a statement.
National Statistician Claire Dennis S. Mapa attributed cooling inflation to the slower increase in the housing, water, electricity, gas and other fuels index.
The index rose by 0.1%, slower than the 0.9% in the previous month and 5.6% a year ago.
“The main contributor to the easing in the inflation of housing, water, electricity, gas and other fuels is due to the faster decline in electricity prices, which had -13.6% inflation,” Mr. Mapa said in mixed English and Filipino.
Electricity inflation contracted by 13.6% from the 8.5% decline in May and 10.3% increase a year earlier.
In June, residential customers served by Manila Electric Co. saw a P1.9623 per kilowatt-hour (kWh) reduction in their electricity bills.
This after the Energy Regulatory Commission ordered all distribution utilities and electric cooperatives to implement a staggered collection of charges on their purchases from the Wholesale Electricity Spot Market in May.
Mr. Mapa also noted the slower annual growth in the transport index to 3.1% from 3.5% a month ago, mainly due to decelerating gasoline prices.
The PSA also attributed the inflation downtrend to slower annual increments in the alcoholic beverages and tobacco commodity group (3.8% from 4.2% a year ago); clothing and footwear (3.2% from 3.4%); furnishings, household equipment and routine household maintenance (2.8% from 3.1%) and personal care, and miscellaneous goods and services (3.2% from 3.4%.)“When it comes to the main contributors to overall inflation this June, the top commodity group is food and non-alcoholic beverages, which had a 61.9% share,” Mr. Mapa said.
The heavily weighted food and non-alcoholic beverages index accelerated to 6.1% in June from 5.8% in May but eased from 6.7% in the same month in 2023.
Food inflation alone quickened to 6.5% in June from 6.1% in the previous month.
Rice inflation eased to 22.5% from 23% a month ago, marking the third straight month of slower rice inflation.
Rice accounted for 45.2% of overall inflation, equivalent to 1.7 percentage points (ppt).
PSA data showed that the average price of a kilo of well-milled rice declined to P55.96 in June from P56.06 in May. On the other hand, prices of regular milled rice rose to P51.07 in June from P51.03 in May and special rice went up to P64.56 in June from P64.41 in the previous month.
Food inflation was also driven by the faster rise in vegetables, tubers, cooking bananas and pulses (7.2% from 2.7%) and meat and other parts of slaughtered land animals (3.1% from 1.6%).
INFLATION FOR BOTTOM 30%Meanwhile, the inflation rate for the bottom 30% of income households accelerated to 5.5% in June, from 5.3% in May 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 eased 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 that the risks to the inflation outlook have tilted to the downside for this year and 2025 due to the tariff reduction on rice imports.
President Ferdinand R. Marcos, Jr. last month signed Executive Order No. 62, which slashed tariffs on rice imports to 15% from 35% previously, until 2028.
The measure is expected to bring down retail rice prices by P6 to P7 per kilo, the Agriculture department said earlier.
“The reduction in the price of rice will definitely have an impact on the food inflation and the overall inflation. But we will have to wait,” Mr. Mapa said.
Despite the downtrend in June inflation, Mr. Mapa said it is still not that clear if inflation will continue to decelerate as there are still risks such as higher fuel, electricity and food prices.
“Nonetheless, higher prices of food items other than rice, transport charges, and electricity rates continue to pose upside risks to inflation,” the BSP said.
Mr. Mapa said the impact of the recent wage hike on inflation may be seen in the coming months.
“We’ve seen before the impact of a wage hike on prices of services. We need to study what are the lag effects, but we have seen in the past that there is an impact on selected commodity groups, in particular, personal care and miscellaneous goods and services,” he said.
A P35 minimum wage hike for workers in NCR was approved by the Regional Tripartite Wages and Productivity Board (RTWPB) last week, set to take effect on July 17.
National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan said that they will continue to work with relevant agencies to further bring down prices.
“We will continue to work closely with the government, stakeholders, and other priority sectors to implement necessary measures to ensure that the country will have a sufficient and affordable food supply — including rice — for every Filipino,” he said.
PEAK IN JULY?For the coming months, Metrobank Research and Market Strategy Department said it expects the tariff cuts to “substantially slow” headline inflation.
“We retain our view that monthly year-on-year inflation will likely peak in July and will trend downwards thereafter,” it said in a report.ING Bank N.V. Manila likewise said that reduction in tariffs should help bring down rice prices.
“The reduction in tariffs will also likely help mobilize existing rice stocks and should benefit producers and exporters in Vietnam, where much of the rice imported into the Philippines comes from,” it said in a report.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in an email that the latest inflation print could make the case for the BSP to begin policy easing.
He said that easing inflation “could support possible local policy rate cuts as early as the latter part of 2024 especially if the Fed starts cutting rates.”“(The) inflation decline, and the anticipated declines in the months ahead will make it easier for the BSP doves, including Governor Eli M. Remolona, Jr. to argue for rate cuts,” ING said, adding it expects the BSP to cut by 25 bps in the third quarter.
Mr. Remolona earlier said that the Monetary Board can begin easing at its Aug. 15 meeting, which is the only policy meeting scheduled in the third quarter.
The BSP can cut by 25 bps in the third quarter and another 25 bps in the fourth quarter, the BSP chief added.
“We continue to believe that the Board will start to cut rates next month, reducing it by a total of 75 bps before the end of the year,” Pantheon Macroeconomics said in a note.
“In early 2025, we expect 50 bps-worth of additional cuts. Headline inflation now looks secure within the (central) bank’s 2-4% target range for the foreseeable future, barring an unexpected supply shock,” it added.
On the other hand, Metrobank expects the BSP to only begin cutting rates by October.
“Despite the lower inflation path, we continue 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,” it said.
“We acknowledge the risk of earlier policy action in the Aug. 15 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.”