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Consumer prices rose at the fastest rate in nearly three years in July as food and fuel costs remained elevated, prompting the central bank to send more hawkish signals for possible further interest rate increases.
Authorities were confident that inflation would still average within the state’s official target for the year, but administration officials were urged to take steps to secure the country’s food supply to stabilize prices.
“Rice prices remained at high levels in July 2014 as supply tightness continued to persist in the market,” Economic Planning Secretary Arsenio Balisacan said in a statement Tuesday.
The Philippine Statistics Authority (PSA) reported that consumer prices rose by 4.9 percent in July, the fastest rate since late 2011. The reading for July was faster than June’s 4.4 percent and matched the top end of the central bank’s forecast of 4.1 to 4.9 percent.
Apart from food, higher housing, water, electricity, fuel, health, transport, recreation and education year-on-year prices were higher in July.
“This confirms our assessment that the economy could see more near-term increases in select food prices, partly due to weather-related supply concerns,” BSP Governor Amando M. Tetangco Jr. told reporters after the inflation data was released.
Late last month, the BSP raised its benchmark overnight borrowing and lending rates from record lows to stem excess demand, which could drive consumer prices further up.
“It’s very likely that the surprise headline number for July will translate to an even stronger print of (around) 5 percent for August,” BPI economist Emilio Neri Jr. said in a note to the bank’s clients.
Given the high inflation in July, Tetangco said further adjustments might be needed to keep prices in check. “Even as we have already taken a series of policy actions to address liquidity growth and its attendant financial stability risk, and to temper inflation, we will not hesitate to use any of our tools to help guide markets to keep inflation within the target range,” he said.
The BSP’s main role is to protect the peso’s purchasing power by ensuring that prices are stable.
“We doubt whether some analysts and government officials can convince monetary authorities to take on a less aggressive monetary stance,” BPI’s Neri said.
Balisacan, who heads the National Economic and Development Authority (Neda), said he still expected inflation to average at around 4.4 percent for the year, which would be within the official target of 3 to 5 percent.
Officials stressed the importance for the government to act fast to address the current tightness in the country’s food supply—a result of damage caused by typhoons “Pablo” and “Yolanda” late last year. Both storms hit major food-producing areas of the country.
Balisacan said the tightness in rice supply, which has driven up rice prices in recent months, was expected to abate due to recent imports.
“Such policy action by the Bangko Sentral ng Pilipinas (BSP) is expected to put a brake on potential price pressures,” said Balisacan.