PH inflation hit its peak in July, say analysts

Inflation may have already peaked this year in July with the recent moderation of fuel prices due to cooling geopolitical tensions offsetting elevated food costs, analysts said.

This comes ahead of the release of official consumer price inflation data for the month this Tuesday, with the headline number seen between 4.1 and 4.9 percent, according to government estimates.

“Slower annual oil price growth and a slightly higher base for the same month the previous year have curbed the overall rise of the index,” Metropolitan Bank & Trust Co.’s research group said.

Metrobank sees July inflation at 4.5 percent, matching May’s level and accelerating slightly from June’s 4.4 percent.

Singapore’s DBS sees inflation at 4.7 percent for July, while its full-year forecast is an average of 4.4 percent.

Last week, the central bank announced higher inflation forecasts for 2014 and 2015, as well as a new projection for 2016.

Inflation for this year is expected to average 4.33 percent versus the previous forecast of 4.4 percent and last year’s 3 percent.

The new projection is within but above the midpoint of the target range of 3 to 5 percent.

Next year, inflation is seen at 3.72 percent, higher than the previous forecast of 3.65 percent.

The inflation target for 2015 is 2 to 4 percent.

The BSP also issued a forecast of 2.8 percent for 2016. The target for that year is also 2 to 4 percent.

The new projections follow the Bangko Sentral ng Pilipinas’ (BSP) decision to hike policy rates for the first time since 2011.

Prior to the move, the BSP’s overnight borrowing and lending rates had stood at record lows since late 2012.

Monetary authorities have been tightening policy settings for months as they seek to rein in consumer demand to offset the effects of supply pressures on prices.

In April and May, banks were told to set aside more of their clients’ deposits as reserves.

In June, the central bank ordered an increase in the yields for special deposit accounts (SDAs), which encourage banks to keep more funds parked idle in BSP vaults.

On Friday, Dutch financial giant ING said the BSP may hike interest rates once more before the year ends, although this may still be contingent on how the economy performed in the second quarter, the data for which will be released two weeks before the next Monetary Board meeting in mid-September.

“We think the strength of the second quarter GDP growth will be the key factor for this,” said Joey Cuyegkeng, ING’s economist in Manila.