The Bangko Sentral ng Pilipinas said Tuesday inflation rate in July likely accelerated to as high as 5.8 percent from 5.2 percent in June, driven by higher prices of electricity, water, fuel, and food.
The BSP Department of Economic Research said in a statement the July 2018 inflation would likely fall within a range of 5.1 percent to 5.8 percent in July.
“The increases in electricity rates in Meralco-serviced areas, water rate adjustments in Maynilad- and Manila Water-serviced areas, domestic gasoline and LPG prices, jeepney fares, scheduled increase of the tobacco excise tax, and prices of rice and other agricultural commodities could lead to upward price pressures during the month,” it said.
It noted a slight downward adjustment in domestic diesel prices in July.
“Going forward, the BSP will continue to keep a watchful eye on the risks to the inflation outlook and will take necessary action to help ensure that inflation expectations remain firmly anchored to the target,” it said.
Inflation rose to a more than five-year high of 5.2 percent in June based on the 2012 consumer price index, bringing the first-half average to 4.3 percent, which was above the 2018 target range of 2 percent to 4 percent.
The Monetary Board, the policy-making body of Bangko Sentral ng Pilipinas, on June 20 raised for the second time this year the overnight borrowing rate by 25 basis points to 3.5 percent, wary of the possible second-round effects of inflation.
The interest rates on the overnight lending and deposit facilities were also increased accordingly.
The Monetary Board said inflation expectations remained elevated for 2018 and that the risk of possible second-round effects from ongoing price pressures argued for follow-through monetary policy action.
Bangko Sentral Governor Nestor Espenilla Jr. said while inflation expectations remained within the target range for 2019, elevated expectations for 2018 highlighted the risk posed by sustained price pressures on future wage and price outcomes.
The June rate hike was the second time this year after the first 25-bps increase on May 10, 2018. Espenilla expressed confidence that the two rate hikes this year would be sufficient for inflation to return to the target range of 2 percent to 4 percent in 2019.
Espenilla said further policy action would enable the Bangko Sentral to reinforce its signal on safeguarding macroeconomic stability in an environment of rising commodity prices and ongoing normalization of monetary policy in advanced economies.