Recent typhoons and the enhanced southwest monsoon, which triggered widespread flooding across Luzon, likely pushed the Philippines’ inflation rate above the central bank’s target range in July 2024.
The Bangko Sentral ng Pilipinas said Wednesday inflation for July would probably settle between 4 percent and 4.8 percent, exceeding the government’s 2 percent to 4 percent target. It would also accelerate from June’s 3.7 percent. Inflation was 4.7 percent in July 2023.
“Higher electricity rates along with the increased prices for agricultural commodities like vegetables, meat and fruits along with higher domestic oil prices are the primary sources of upward price pressures for the month,” the BSP said in a statement.
“These factors are expected to be offset in part by lower rice and fruit prices along with the peso appreciation,” the BSP said.
The BSP said it would continue to monitor developments affecting the outlook for inflation and growth in line with its data-dependent approach to monetary policy formulation.
A higher-than-expected inflation rate could delay the BSP’s planned interest rate cut in August, but Rizal Commercial Banking Corp. chief economist Michael Ricafort said a reduction remains possible.
“The widely expected -0.25 local policy rate cut as early as Aug. 15, 2024, or more than two weeks from now, remains possible, especially if inflation would stay well within the 2 percent to 4 percent inflation target, especially in the coming months/years,” Rizal Commercial Banking Corp. chief economist Michael Ricafort said.
Ricafort the massive flooding due to Typhoon Carina caused the disruption of business, livelihood and other economic activities in affected regions and might drag the gross domestic product growth in the third quarter.
The country’s GDP grew 5.7 percent in the first quarter, and the Philippine Statistics Authority has yet to release the second-quarter figure.
“Reparations/rehabilitation/rebuilding of flood/typhoon/storm damage would offset these in terms of increased government spending on infrastructure repair, as well as spending by consumers/households, businesses, and other institutions to fix the storm/flood damage such as on appliances, furniture/fixtures, cars/motorcycles, other personal belongings, equipment, among others,” Ricafort said.
“Realistically, there may be some temporary pick up in prices in hard hit areas until logistics normalize, also in view on some damage on agriculture that could lead to some temporary spike in vegetable/fruit/other produce prices that could lead to some transitory pick up in food prices; but the price freeze would temper these amid the state of calamity declared in some areas; a consistent pattern seen for many years/decades during the storm/typhoon/flood season,” he said.
Remittances from overseas Filipino workers and increased government spending could also support the economy, Ricafort said. Foreign aid and loans might spur additional business activity.
