Inflation seen breaching low end of BSP target

THE AVERAGE rise in consumer goods such as food and fuel may have decelerated to its slowest pace on record in July, presenting a new threat to the central bank’s full-year target.

Foreign and local banks were in agreement that July inflation likely fell below or matched June’s record-low. The average for the year, some said, might fall below the central bank’s target range of 2 to 4 percent.

“We expect inflation in the Philippines to have remained muted,” Standard Chartered said late last week. The British bank did not give a forecast for July, but said 2015 inflation would likely average lower than 2 percent.

The Bangko Sentral ng Pilipinas’ (BSP) main goal is to protect consumers’ purchasing power by keeping inflation stable and within target.

High inflation can be an excessive burden on consumers, but if inflation gets too low—or turns into deflation where average prices fall lower than year-ago levels—businesses lose the incentive to keep producing goods. This threatens to stunt economic growth.

BSP Governor Amando M. Tetangco Jr. said the central bank expected inflation to average between 0.5 and 1.3 percent in July compared with June’s record low 1.2 percent.

In different forecasts, most banks said inflation likely fell from June’s level. BDO Unibank sees inflation at 1 percent, Bank of the Philippine Islands at 0.8 or 0.9 percent, Security Bank at 0.89 percent, ING at 0.9 percent and DBS at 1.2 percent.

“Inflation is expected to creep higher toward the end of the year. We expect an average inflation rate of 1.7 percent for 2015,” ING economist Joey Cuyegkeng said.

Base effects from 2014 are also expected to be most pronounced in July and August. In the same months last year, inflation peaked at 4.9 percent.