Inflation eases to 5-month low of 2.8% in June

Inflation in June fell to a five-month low of 2.8 percent, such that state planning agency National Economic and Development Authority (Neda) on Wednesday said it expects stable prices until yearend to support economic growth.

The latest Philippine Statistics Authority (PSA) data showed that headline inflation last month was the lowest since January’s 2.7 percent, the first month since February that the rate of increase in prices of basic goods settled below 3 percent.

But compared with a year ago, the June figure was higher than the 1.9 percent posted during the same month last year.

In a statement, Neda attributed the month-on-month slowdown in June inflation to slower food and non-food price adjustments.

“For food and non-alcoholic beverages, inflation slowed to 3.5 percent in June from 3.8 percent in the previous month. Likewise, non-food inflation slowed to 2 percent in June from 2.5 percent in May,” Neda noted.

“This follows the significantly slower year-on-year increase in domestic petrol prices during the period, particularly unleaded gasoline (5.1 percent from 9.9 percent), diesel (5.3 percent from 13.6 percent), and kerosene (3 percent from 9.6 percent),” Neda added.

Inflation averaged 3.1 percent year-on-year during the first half, within the government’s target range of 2-4 percent.

Bangko Sentral ng Pilipinas Governor Nestor A. Espenilla Jr. said in a text message to reporters that the lower inflation print last June was “welcome news but not unexpected.”

“The further deceleration in inflation in June is in line with our forecast. The lower inflation is partly driven by lower fuel prices and power rates. This validation gives us the space to carefully consider our policy options with respect to fine tuning deployment of our monetary instruments to further the market-based development of the domestic financial market,” Espenilla said.

Neda Undersecretary and officer-in-charge Rosemarie G. Edillon said “keeping inflation stable strengthens prospects of stronger domestic economic activity in the near-term.”

Edillon nonetheless cautioned about domestic and external risks to inflation, including tax reform.

“Domestically, the transitory impact of the proposed comprehensive tax reform program could push up inflation once implemented,” Edillon said, hence she urged the government “to have social safety nets to mitigate the short-run effects.”

“Nevertheless, the government needs to communicate well to the public the comprehensive tax reform program’s benefits, especially in terms of productivity improvements which, in effect, will eventually result in lower inflation,” Edillon said.

Edillon added that “on the external front, domestic prices may be affected as global financial market conditions adjust in response to the faster monetary policy normalization in the United States.”

The Neda official said it helped that there was a “significant decline in the probability of extreme weather disturbances due to El Niňo and La Niňa until the end of 2017,” which “bodes well for agricultural production and commodity prices moving forward.”

“However, the government should take advantage of good weather conditions to accelerate the implementation of climate change adaptation measures. Among the crucial ones are investing in infrastructure like catchment basins, advance atmospheric moisture extraction, and promoting water-saving technology. Rehabilitation of damaged irrigation systems and periodic maintenance will also ensure disaster and climate resiliency of the agriculture sector,” according to Edillon.