Inflation rate in July 2021 fell to a seven-month low of 4.0 percent from 4.1 percent in June, pulled down by slower annual increases in the transport, alcoholic beverages and tobacco prices, the Philippine Statistics Authority said Thursday.
The July inflation was faster than 2.7 percent recorded in the same month last year.
Data showed the inflation averaged 4.4 percent in the first seven months of 2021, or above the upper end of the target range of 2 percent to 4 percent set by the government.
“The main source of the downward trend of the July 2021 inflation was the lower annual increment registered in the transport index at 7.0 percent, from 9.6 percent in the previous month,” the PSA said.
Contributing to the downtrend in the headline inflation were the slower annual increases in the indices of alcoholic beverages and tobacco, 10.2 percent; furnishing, household equipment and routine household maintenance, 2.3 percent; and restaurant and miscellaneous goods and services, 3.6 percent.
Inflation rates were higher in the indices of food and non-alcoholic beverages, 4.9 percent; clothing and footwear, 1.7 percent; housing, water, electricity, gas and other fuels, 2.6 percent; health, 3.1 percent; and communication, 0.3 percent.
Bangko Sentral ng Pilipinas Governor Benjamin Diokno said the July inflation was consistent with the BSP’s assessment that inflation could settle close to the high-end of the target range over the near term before decelerating back to within the target by end of the year as the impact of government supply-side measures take effect.
“Meanwhile, inflation is projected to remain firmly within the midpoint of the target for 2022 to 2023. The continued implementation of direct non-monetary interventions to ease supply constraints remain crucial in tempering inflation pressures,” Diokno said.
“The balance of risks to the inflation outlook remained broadly balanced over the policy horizon. The uptick in international commodity prices due to supply-chain bottlenecks and the recovery in global demand could lend upside pressures on inflation,” he said.
Diokno said the emergence of new coronavirus variants and delays in easing lockdown measures were seen to pose downside risks to both demand and inflation.
“The Monetary Board will consider the latest price developments along with the Q2 2021 GDP outturn in its assessment of the monetary policy stance on Aug. 12, 2021. The BSP remains watchful over the evolving economic conditions and challenges brought about by the pandemic to ensure that the monetary policy stance remains consistent with its price and financial stability objectives,” Diokno said.
The government is set to release the second-quarter GDP data on Aug. 10. In the first quarter, GDP declined by 4.2 percent, an improvement from the 8.3-percent contraction in the fourth quarter.
ING Bank Manila senior economist Nicholas Mapa said in a report Thursday that headline inflation slid back within target in July, the first time in 2021 as supply side bottlenecks eased and base effects kicked in. He noted the recent pickup in food costs and the acceleration of food items by 4.9 percent from 4.7 percent.
“Given the heft of the food subsector in the overall CPI basket, we could see inflation pressures elevated in the second half of the year despite extremely soft domestic demand with the impending ECQ [enhanced community quarantine in Metro Manila from Aug. 6 to 20] and ongoing recession,” he said.
He said reports of a possible 3 percent to 5-percent increase in the cost of basic food items such as canned goods and packaged noodles on top of a possible pickup in fruits and vegetables due to storm damage would likely translate into elevated food inflation.
“Despite possible bouts of faster inflation, we fully expect BSP to keep policy rates unchanged for the rest of 2021 and well into 2022. BSP Governor Diokno has repeatedly stated his preference to provide support for the fledgling recovery and deliver monetary stimulus for as long as ‘it is needed,’” Mapa said.
Mapa said the Philippine economy would likely hit a speed bump in the third quarter with overall economic activity slowing further due to the two-week lockdown in August.
“With the economy reeling from the pandemic, we doubt BSP will even consider ‘pre-emptive’ recalibration of policy rates as policy tightening at this stage will definitely snuff out whatever momentum is left in the economy’s growth engines,” Mapa said.