Inflation eases to 5-month low

Inflation in June fell to a five-month low of 2.8 percent, pointing to prices remaining stable for the rest of the year, according to state planning agency National Economic and Development Authority (Neda).

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

The June figure was, however, higher than the 1.9 percent posted in 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,” the Neda noted.

“This follows the significantly slower year-on-year increase in domestic petrol prices, 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),” the 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 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 warned of the possible impact of domestic and external risks, including tax reform, on inflation.

“Domestically, the transitory impact of the proposed comprehensive tax reform program could push up inflation once implemented,” Edillon said as 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.

“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,” she said.

The Neda official said it had helped that there was a “significant decline in the probability of extreme weather disturbances due to El Niño and La Niña until the end of 2017.” This, she added, “bodes well for agricultural production and commodity prices.”

“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 such as catchment basins, advance atmospheric moisture extraction, and promotion [of] 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.