Inflation cooled to 3.7% in June, slowest in 4 mos
Headline inflation in June rose at its slowest pace in four months amid slower increases in housing, water, electricity, gas and other fuels and transport items, the Philippine Statistics Authority (PSA) said on Friday.
Preliminary data from the agency showed that the consumer price index grew by 3.7 percent year-on-year in June, easing from 3.9 percent in May and 5.4 percent in the same period last year.
This is well within the 3.4 to 4.2 percent forecast of the Bangko Sentral ng Pilipinas (BSP) for the month, and slightly below the 3.9- percent average inflation forecast in an Inquirer poll of 10 economists conducted last week.
Inflation in June marked the slowest growth since the 3.4- percent logged in February, making it the seventh straight month that inflation settled within the BSP’s 2 to 4 percent target range for the year.
For the first six months, inflation averaged 3.5 percent, much slower than the 7.2 percent in June 2023.
National Statistician Claire Dennis Mapa said June inflation was mainly driven by price reductions in electricity and gasoline.
“Overall inflation for electricity nationwide is negative 13.6 percent compared to last May, which was negative 8.5 percent. The second that contributed to the overall inflation reduction is of course transportation because the price of gasoline in particular is low,” Mapa said in a press briefing.
‘Nuanced economic landscape’
Inflation in housing, water, electricity, gas and other fuels eased to 0.1 percent in June from the 0.9 percent the previous month.
Likewise, transport also contributed to slower overall inflation, as the sector’s inflation eased to 3.1 percent in June from 3.5 percent in the preceding month.
For Robert Dan Roces, chief economist at Security Bank Corp., the June inflation “reveals a nuanced economic landscape” of the country despite improved overall price stability.
“This divergence highlights the complex challenges facing policymakers. The moderation in housing, utilities and transport costs contributes to the general inflation decline, potentially supporting economic recovery,” Roces said.
Food inflation alone, however, rose by 6.5 percent from 6.1 percent in May.
Growth in food inflation, which contributed 2.2 percentage points of the overall inflation, was attributed to the faster increases in vegetables, tubers, plantains, cooking bananas and pulses index at 7.2 percent in June from 2.7 percent in May.
“Meat and other parts of slaughtered land animals also contributed to the uptrend with an inflation rate of 3.1 percent during the month from 1.6 percent in May,” the PSA added.
Roces also emphasized the need for the government and central bank to balance overall economic stability through addressing inflationary pressures as these trends may “disproportionately” affect lower-income households.
Rice inflation
Despite slower growth in June, Mapa said that the deceleration in rice inflation remains insignificant.
However, he expects rice prices in the coming months to reduce following the implementation of Executive Order 62, which modifies tariff rates on agricultural products including rice.
In June, rice inflation eased to 22.5 percent from 23 percent in May. This translates to a 45.2 percent or 1.7 percentage point contribution to the overall inflation. The commodity has the biggest weight in the overall inflation basket at 8.9 percent.
Indeed, BSP Governor Eli Remolona said in a statement that the decision to further slash the import duty on the staple grain helped tilt the balance of risk to inflation to the “downside” this year and next—meaning that the central bank now sees less upward price pressures that could fan inflation.
Upside risks
But Remolona still flagged the “upside risks” from higher prices of food items other than rice, as well as costlier transport fares and electricity rates.
Overall, the BSP chief said the latest inflation print supported the central bank’s outlook for price growth to average within the 2 to 4 percent target range this year and in 2025.
Robert Carnell, Asia Pacific head of research at ING Bank, said the June inflation downtick would make it easier for the doves at the BSP to argue for rate cuts in the third quarter against the backdrop of a weak peso.
Last week, Remolona struck a more dovish tone and said there’s a chance that the central bank might cut the policy rate by a total of 50 basis points (bps) this year—with the first 25-bp cut possibly in August and ahead of the US Federal Reserve.
”The PHP opened stronger this morning, helped by this inflation data, and will be a key factor to watch when gauging whether or not BSP has the ability to ease rates ahead of the Fed without this spurring unwanted PHP depreciation,” Carnell said.
“This will certainly be easier to achieve if it comes against a backdrop of solid growth yet moderating inflation. For now, we are assuming that this is achieved, and are penciling in a 25bp cut in 3Q24,” he added.
