The Bangko Sentral ng Pilipinas said Tuesday it will determine the strength of its “follow-through” response in the Monetary Board meeting later this week after the inflation rate accelerated to a more than five-year high of 5.7 percent in July from 5.2 percent in June.
The July inflation was significantly faster than 2.4 percent recorded a year ago, data from the Philippine Statistics Authority showed. The figure brought the average inflation in the first seven months to 4.5 percent, above the government’s target range of 2 percent to 4 percent for the year.
“The July 2018 actual inflation is at the high end of our July forecast but remains consistent with our expectation of elevated inflation prevailing in 2018 that will return to the target range by 2019,” Bangko Sentral Governor Nestor Espenilla Jr. said in a statement.
“We will consider all the latest data updates in determining the strength of our follow-through response in the upcoming policy meeting of the MB this Thursday,” Espenilla said.
Espenilla reiterated the Bangko Sentral’s commitment to meet the 2018 inflation target of 2 percent to 4 percent. Espenilla last month said the board was considering a “strong follow-through” movement in its meeting on Thursday, wary of the second-round effects of accelerating inflation.
The government’s economic team composed of the Finance and Budget Departments and the National Economic and Development Authority said stronger government measures, most especially in improving agriculture productivity and, in the short term, a strategic trade policy, were needed to address supply constraints that further pushed consumer prices up.
“The current price pressures emanate mainly from supply-side factors. Addressing supply constraints to curb inflation is the utmost priority of the government,” the economic team said.
They said a part of the supply problem was the country’s declining rice stock inventory”•caused by weather disturbances in the country and in other rice-producing countries like Thailand and Vietnam”•which was taking a toll on the prices of rice.
The economic team said amending Republic Act No. 8178 or the Agricultural Tarrification Act to replace quantitative restrictions on rice imports with tariffs would significantly improve the rice market, bringing down the price of the grain.
The Philippine Statistics Authority said the faster inflation rate last month was mainly due to the 7.1-percent annual rate recorded in food and non-alcoholic beverages index. Nine of 11 commodity divisions registered higher annual upticks during the month.
“Excluding selected food and energy items, core inflation rate accelerated by 4.5 percent in July 2018. It was pegged at 4.3 percent in the previous month and 2.1 percent in July 2017,” the PSA said.
“Similarly, the annual mark-up in the food alone index was higher at 6.8 percent in July 2018. Inflation in the previous month was observed at 5.8 percent and in July 2017, 2.9 percent,” the agency said.
The July inflation rate was within the Bangko Sentral’s projection of 5.1 percent to 5.8 percent it announced last week.
DBS Bank of Singapore said it was expecting the Bangko Sentral to increase the overnight borrowing rate by 50 basis points to 4 percent in its meeting on Thursday.
The Monetary Board on June 20 raised for the second time this year the policy interest rates by 25 basis points to 3.5 percent.
The interest rates on the overnight lending and deposit facilities were also increased accordingly.
The Monetary Board said that 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.
Espenilla 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.
Espenilla said a 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.