Inflation rate in July slowed to a two-year low of 2.4 percent from 2.7 percent in June, giving the Bangko Sentral ng Pilipinas elbow room to adjust the policy rates in the next policy meeting on Thursday, according to economists.
Data from the Philippine Statistics Authority showed that the July inflation was slower than 5.7 percent registered a year ago. This brought the average rate in the first seven months to 3.3 percent, within the government’s official target range of 2 percent to 4 percent for the year.
“The downtrend was primarily brought about by the slower annual rate posted in the index of the heavily-weighted food and non-alcoholic beverages at 1.9 percent,” the PSA said.
ING Bank economist Nicholas Mapa said a stronger peso had a hand in slower inflation in July while base effects also came into play.
Mapa said because of the trend of easing inflation and the US Federal Reserve’s rate cut by 25 basis points, the Monetary Board of the Bangko Sentral was expected to cut interest rates in its meeting on Thursday.
“BSP has vowed to remain data-dependent with the focus shifting to the Thursday release of the second-quarter GDP with market consensus at 5.9 percent. Governor [Benjamin] Diokno has telegraphed up to 50 bps worth of rate cuts for the balance of 2019 and we believe we will see at least a 25 bps rate cut [with door open for 50 bps] all the more given that second-quarter GDP is likely to settle below the 6-percent handle,” Mapa said.
The BSP said the July inflation rate was consistent with its prevailing assessment that inflation would continue to decelerate in the third quarter before firmly settling within the target range.
“Ample domestic food supply conditions have supported the continued easing of price pressures. The BSP will keep a close watch over latest economic developments to ensure that the monetary policy stance remains consistent with the BSP’s price stability objective while being supportive of economic growth,” the BSP said in a statement.
Economic Planning Secretary Ernesto Pernia said rice deflation was observed for the third consecutive month, reaching -2.9 percent in July.
“We welcome this decelerating trend in prices but we remain on guard against possible upside risks such as adverse weather conditions, possible entry of the African swine fever and uncertainty in the global oil market, among others,” Pernia said in a statement.
The Philippine Atmospheric, Geophysical and Astronomical Services Administration or Pagasa expects the southwest monsoon or Habagat to peak in July to September.
The agency said that six to nine tropical cyclones were expected in the third quarter, while another three to five tropical cyclones could enter the Philippine Area of Responsibility in the fourth quarter.
“Government agencies such as Department of Agriculture, Department of Trade and Industry and the National Food Authority should ensure sufficient supply of basic food commodities, in view of the expected tropical cyclones that will enter the PAR,” Pernia said.
The Food and Drug Administration temporarily banned the importation of pork meat products from Hong Kong, North Korea and Germany, alongside 17 other ASF-infected areas.
“The concerned authorities should intensify its market surveillance to ensure the compliance of importers and retailers with the government’s directive. The government should also ensure that there is sufficient production of pork and other meat products locally as the threat of the epidemic is seen to continue in the near term,” Pernia said.
Excluding selected food and energy items, core inflation continued to move at a slower pace of 3.2 percent in July.