Inflation at record low 0.8% in July

As expected, consumer prices rose at their slowest pace on record in July, giving the central bank more breathing room to keep interest rates on hold even as global regulators put a squeeze on liquidity conditions.

Food inflation remained muted for the month and prospects for out-of-control increases later this year seem slim, given the government’s “proactive” decision to import more rice. Cheap fuel, meanwhile, was the main drag on consumer prices.

“We expect some monthly out-turns below our target range, but we remain confident that the full-year averages over the policy horizon will be kept within the target range, albeit close to the lower end,” Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said.

In July, consumer prices were on average 0.8-percent higher than the same month in 2014, the slowest increase on record. June inflation was the previous record low at 1.2 percent. For the seven months ending July, inflation averaged 1.9 percent, which was below the central bank’s target range of 2 to 4 percent for 2015.

Economic Planning Secretary Arsenio M. Balisacan said on Wednesday that the record-low inflation last July augured well for consumer spending and the economy as a whole, but the government should remain ready for any risk to food prices posed by the rainy season alongside the dry spell brought by El Niño.

“Continued monitoring of agricultural areas is important to ensure that appropriate policy actions are implemented without delay,” he said. “The easing of the core inflation is favorable for household consumption and supports economic expansion moving forward, as it provides less pressure for interest rates to increase and supports economic expansion moving forward, as it provides less pressure for interest rates to increase.”

July inflation was within the BSP’s projected range of 0.5 to 1.3 percent and in line with forecasts given by banks polled by the Inquirer last week.

This comes ahead of the rate-setting meeting of the BSP’s policy-making Monetary Board on Thursday next week.

Tetangco said the BSP’s main concern in the coming weeks would be shocks that would come from overseas, the main one being the US Federal Reserve’s plan to raise interest rates by September. An adjustment by the US Fed—the first in nearly a decade—will lead to an improvement of yields of asset prices in the US.

Domestically, the main threat to inflation is the ongoing El Niño phenomenon, which can cause massive damage to farmlands and jeopardize the country’s food supply. Spikes in rice prices, however, are unlikely this year due to the government’s decision to import more rice to keep costs stable.