Economists divided on inflation outlook

Inflation, or the rate of increase in the prices of basic commodities, is seen accelerating this month compared with July, but economists are divided on the pace.

Socioeconomic Planning Secretary Cayetano W. Paderanga Jr. said he hoped the pace in August would be slower than the 5.1 percent in July. He declined, however, to forecast how inflation will behave this month.

But Paderanga said that oil prices, a significant factor in the prices of food, are “relatively stable.” Food weighs heavily on the consumer price index (CPI), which indicates changes in the prices of various goods.

Headline inflation, based on the CPI, measures the rate of increase in the cost of living, according to the National Statistics Office.

Benjamin E. Diokno, former budget secretary and currently professor at the University of the Philippines School of Economics, said the modest inflation for July was partly due to the appreciation of the peso and the steady or slightly lower prices of oil.

“I expect August inflation to be lower than July inflation for two reasons: peso appreciation and slight improvement in oil prices. In the near and medium term, I expect oil prices to be easing because of weak demand and expectation of a slower world economy, the latter as a result of the increasing influence of policymakers who favor fiscal austerity to fiscal stimulus,” Diokno said.

Diokno noted that, globally, the “mood” has changed from fiscal stimulus to fiscal austerity.

“Under such an environment, prices are likely to taper off, not rise,” Diokno said.

Meanwhile, Cid L. Terosa of the University of Asia and the Pacific said the rate of price increases could speed up in August compared with July.

Terosa cited the weather, which influences food production and the movement of goods in the Philippines, as a major factor.

“I think it would be faster because of increases in the price of oil products. Severe weather disturbances could pull up prices, too,” Terosa said.

Last week, the NSO said the annual hike in the cost of living in the Philippines, in terms of headline inflation, eased in July 2011 from the previous month.

The NSO attributed this to slower price increases in food items, such as rice, which affect consumer purchases.

The agency reported that the country’s annual headline inflation eased to 5.1 percent in July from 5.2 percent in June due to the slower yearly hikes in food and non-alcoholic beverages, housing, water, electricity, gas and other fuels, health, transport, restaurants and miscellaneous goods and services.

In July 2010, the annual inflation rate reported was 3.7 percent (the same annual rate posted in June 2010), the NSO said.