High food prices likely pushed up June inflation rate to 1.8% — DBS

DBS Bank of Singapore said Monday inflation rate in the Philippines likely picked up to 1.8 percent in June from 1.6 percent in May, on higher food and oil prices.

“Expect CPI [consumer price index] inflation to have ticked up more markedly in June as effects from low oil prices start to dissipate. Food prices have also inched up, due to weather conditions, similar to what is also seen in the region,” DBS said in a report Monday.

“We look for CPI inflation at 1.8 percent year-on-year  in June. And CPI inflation is likely to continue creeping higher, likely to reach 2.5 percent by the year-end,” the bank said.

DBS said Bangko Sentral ng Pilipinas was not expected to tweak the current monetary policy settings this year, but 2017 would be another story.

“Bangko Sentral ng Pilipinas continues to remain watchful of inflationary risks, despite inflation staying below the 2 percent to 4 percent target for the best part of the past year. We don’t think the BSP will do anything for now, but the central bank is likely to raise rates in early 2017,” it said.

It said inflation might return to the 2.5 percent to 3 percent range, while GDP growth would remain robust above 6 percent. DBS said it would be interesting to see how aggressive the Duterte administration would implement expenditures going forward.

The government is set to release the June inflation data today.

Inflation in the first five months averaged 1.2 percent, lower than the 2 percent to 4 percent official target of the government. 

Bangko Sentral Governor Amando Tetangco Jr. said last week inflation in June likely accelerated to as high as 2.4 percent from 1.6 percent in May, on the back of higher tuition and food prices.

“The BSP forecast suggests that June inflation could settle within the 1.5 percent to 2.4 percent range. Upside inflation pressures could come from the increase in tuition fees as well as in rice and vegetable prices,” Tetangco said in a text message.

Tetangco, however, said the aforementioned increases could be partly offset by the decline in electricity rates and domestic oil prices for the month.

Distributor Manila Electric Co. earlier said the residential rate for a typical household consuming about 200 kilowatt-hours went down in June by P0.13 per kWh, bringing the rate to P8.32 per kWh, the lowest since January 2010.

The reduction was due to the downward movement in the generation charge, which more than offset higher transmission cost.

The manageable inflation environment coupled with robust domestic growth prompted the policy-setting Monetary Board of Bangko Sentral to keep the benchmark interest rates steady in its meeting on June 23.

Bangko Sentral maintained the interest rates at 3.5 percent for overnight lending, 3 percent for overnight borrowing and 2.5 percent for overnight deposits.

The Monetary Board’s decision was based on its assessment that the inflation environment continued to be manageable. Latest forecasts showed that average inflation would likely settle near the lower end of the 2 percent to 4 percent target range in 2016.

Topics: High food prices , inflation rate , DBS Bank of Singapore
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